Liquidity provision for corporate bonds has become significantly more expensive after the 2008 crisis. Using index exclusions as a natural experiment during which uninformed index trackers request immediacy, we find that the cost of immediacy has more than doubled. In addition, the supply of immediacy has become more elastic with respect to its price. Consistent with a stringent regulatory environment incentivizing smaller dealer inventories, we also find that dealers revert deviations from their target inventory more quickly after the crisis. Finally, we investigate the pricing impact of information, changes in ownership structure, and differences between bank and nonbank dealers. Received February 22, 2017; editorial decision May 29, 2018 by Editor Itay Goldstein. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

In Mergers and Acquisitions (M&As) a significant proportion of targets’ equity is owned by financial institutions that simultaneously own targets’ bonds (“dual holders”). Targets with larger equity ownership by dual holders have lower M&A equity premia and larger abnormal bond returns, particularly when dual holders stand to benefit more from appreciation of their bond stakes, e.g., when their bond ownership in the target is large and the target credit rating is non-investment grade. Dual holders are more likely to vote in favor of the merger proposal. Our results suggest the presence of coordination of decisions within dual holding financial conglomerates in M&A targets.

Strong conflicts of interest exist within investment banks: the investment banking division possesses substantial private information, and the asset management division seeks such information. This raises the question of whether the asset management division benefits from an information advantage on client firms. While prior examinations of advisor bank trading in client firms have focused on stocks and found mixed results, we argue that the options market represents a more attractive venue for such trading. We find significant evidence of advisor banks trading in client firm options ahead of merger announcements, but no evidence of similar trading in client firm stock. Received October 22, 2015; editorial decision June 5, 2018 by Editor Philip Strahan. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.