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This study examines the direct (out‐of‐pocket) flotation costs of new capital issues by bank holding companies between 1980 and 1986 and the total costs including any market effects of security issuance. A regression model is developed that relates the direct selling costs to the type of security being issued, the exchange on which the parent bank holding company is traded, information specific to the issue, and information specific to the firm. The model is highly significant, explaining over 80 percent of the variation in issuing costs. These direct costs, however, are small for equity issues when compared to information effects (stock price responses). When these costs are included, the costs to bank holding companies of issuing equity increase substantially and the direct costs of issuing preferred and debt are, generally, more than offset by positive stock price effects.

Recent studies have shown that the level of insider holdings and firm value are related in a nonlinear manner. Other studies find that the level of debt in a firm's capital structure declines with increases in its growth options. The principal‐agent relationship maintains that an increase in the equity stake of insiders reduces the agency costs of issuing debt. Extension of this premise suggests, however, that the agency costs of debt rise with extremely high levels of insider holdings as insiders consume perquisites to the detriment of outside stakeholders, revealing a nonlinear relation attributable to agency costs. We examine the relation between debt financing and insider holdings for 1894 firms at the end of 1989. In keeping with the hypothesized relation, the cross‐sectional regressions of leverage on insider holdings reveal significant nonlinearities. Leverage first rises with insider holdings and then declines. The positive relation between leverage and insider holdings returns as inside ownership approaches 100 percent. These results hold for two different measures of leverage and after controlling for industry differences in leverage, tax shields, firm size, growth options, and earnings or return volatility. The results also hold when regulated firms are excluded from the analysis.

The purpose of this paper is to investigate how quotes originating via electronic communication networks (ECN)s affect trading costs.

In order to investigate the relations between trading costs and quotation venue, the bid‐ask spread is decomposed into its theoretical cost components associated with adverse selection, inventory handling, and order processing.

Stoll's adverse selection costs of ECN‐originated quotes relate positively to effective spreads, while Lin et al.'s adverse selection costs relate negatively to effective spreads.

The paper shows how trading costs relate to trading venue choice by decomposing the bid‐ask spread.

An examination of insider trading before and after the announcement of Credit Watch placements sheds new light on the study of both bond rating changes and insider trading. This paper utilizes Credit Watch placements classified by 11 indentifiable trigger events for the years 1981‐1990. We find significant insider purchases before positive implication placements, but no sales before negative implication placements. Among individual trigger events, we observe significant insider purchases before and after placements due to improved operating performance, bidding on a firm with a higher debt rating and firms increasing their debt‐to‐equity ratios. Significant insider purchases are found before placements due to purchasing assets. Significant insider sales are found before and after placements due to poor operating performance.

There has been a loosening of the regulation governing the market for corporate control in the banking industry. Nearly every state in the U.S. has passed some form of interstate banking legislation that allows out‐of‐state banks to acquire local banks. Previous research has shown that the market reaction to this state legislation is both positive and significant for affected bank stocks. What is not clear from prior research is whether all banks are positively affected by the legislation or just banks that are likely acquisition targets. This study measures the impact on both subsequent buyer and target banks. Results indicate that the reaction is a general effect reflecting positive expectations for the industry. The buyer group sustains a significant five percent increase during the event window and the target group increase is over seven percent. The higher return for the target group may reflect an additional acquisition premium. However, the difference between the two groups is not significant. Tests utilizing market value as a proxy for acquisition attractiveness demonstrate that size does not impact the results.

An empirical survey, of 136 respondents from UK quoted companies, was conducted with regard to the likely effects of UK corporation tax reform on share buy‐backs, capital investment and financing choices. Overall, 45 per cent expected ACT abolition to lead to an increase in share buy‐backs. Logistic regression analysis links this view to corporate liquidity. The abolition of advance corporation tax is, however, unlikely to have a significant impact upon UK and overseas capital investment, bond issues, bond redemptions, share issues, finance leasing and projected dividend levels. Capital investment and financing choices are likely to be invariant to the combined effects of a reduced corporate tax rate and a quarterly collection period.

Recent studies on the use of private, non-bank, debt have given conflicting results. Instead of a fixed order of preference between various choices of debt as suggested by previous studies, this study postulates that there is a life cycle of debt choice, and as firms move through the cycle, their preferences change. For stable, mature firms, when given a choice, non-bank private debt would fall in between the two extremes of bank debt and public debt. We provide empirical as well as anecdotal evidence from the trade press to support this view. We jointly model the decision to choose a debt source as well as the amount of debt on data from a current database to focus on the “intentional” change in debt levels, rather than those due to unintentional changes. We find that there are significant interdependencies between the decision to borrow from a particular source, as well as the amount of loan, and that taxes, as well as lender reputation, degree of renegotiability and financial flexibility required by the borrower, are key factors that influence the choice of private debt source.

This paper investigates how a firm's human resource capability can affect the deployment and effectiveness of corporate mergers and acquisitions strategy.

Mergers and acquisitions (M&A) is treated as a long‐term strategic orientation based on human resource advantage rather than a tactic to pursue short‐term goals. Using a sample of 267 US banking firms, the main and interaction effects of M&A intensity, HR capability, and in‐state propensity on four firm performance measures were examined.

The findings confirm that banking M&A could be very effective when the firm had high HR capability. Evidence was also found that HR capability had a direct impact on firm performance. Although in‐state M&A strategy was in general superior to out‐of‐state M&A strategy, a firm with excellent HR capability might narrow the performance difference between in‐state and out‐of‐state M&A.

An obvious drawback of using this sample of banking firms is that it raises questions about the generalizability of these findings to smaller financial firms and firms in other industries. This study considers firms having at least one M&A over a three‐year period, so we should not generalize our findings to those firms preferring to use internal growth strategies or greenfield start‐ups.

The main message of this paper is that human resource capability is critical for M&A strategy to be effective.

By extending previous investigations which showed that M&A strategy and HR capacity should be independently treated, this study highlights the critical role of internal HR capability in performance implications of M&A strategy.