This paper provides a theory of foreign equity investment restrictions. In a setting where the demand function for domestic shares differs between domestic and foreign investors, domestic entrepreneurs can maximize firm value by discriminating between domestic and foreign investors. The empirical implications of this theory are supported by evidence from Switzerland. In contrast to mean-variance asset pricing models, the model correctly predicts that the relaxation of foreign equity investment restrictions decreases the value of shares available to foreign investors.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
4217.
Length: Date of creation: Nov 1992 Date of revision: Handle: RePEc:nbr:nberwo:4217
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