Financial crises are often accompanied by an outflow of foreign portfolio investment and an inflow of foreign direct investment (FDI). We provide an agency-theoretic framework that explains this phenomenon. During crises, agency problems affecting domestic firms are exacerbated, and, in turn,...

We argue that when bankruptcy code is creditor-friendly, excessive liquidationscause levered firms to shun innovation, whereas by promoting continuation upon failure,a debtor-friendly code induces greater innovation. We provide empirical support for thisclaim by employing patents as a proxy for...