Bank regulators tend to disagree with the idea that markets can play a role in bank regulation. The markets for bank securities are viewed by regulators as inefficient and lacking the necessary information to demand sufficient risk premiums on bank obligations to affect bank management decisions. On the other hand, bankers who have an active market for their securities tend to place faith in market assessments to determine the cost of management policies; therefore, they tend to think that the market plays an important role in “regulating” bank management decisions. The regulators are perhaps correct about the markets for small and medium–sized banks, but for those banks which have an active market for their securities, do investors adjust rates of return for the presence of increased potential of bankruptcy? If so, when does the adjustment take place?

Richard H. Pettway, The Effects of Large Bank Failures Upon Investors' Risk Cognizance in the Commercial Banking Industry, The Journal of Financial and Quantitative Analysis, Vol. 11, No. 3 (Sep., 1976), pp. 465-477

Solving capital budgeting problems with linear and integer programming has been part of the finance literature for some time [21, 22, 23, 7, 14, and 18]. Capital budgeting problems have unique properties that distinguish them from other integer linear problems discussed in the mathematical programming literature. Capital budgeting problems generally have the following characteristics: (1) the matrix tends to be rectangular with more variables than constraints; (2) they are all maximization problems with ≤ constraints and nonnegativity conditions in the general form 0≤xi≤1 in the case of linear programming and xi = 0, 1 in the case of integer problems; and (3) there are often mutually exclusive projects among the variables. The purposes of this note are to illustrate some computational experience using existing integer algorithms to solve a set of capital budgeting problems and to begin to catalog the performance of integer codes on financial problems.

Recent models of IPO underpricing suggest that high-quality firms underprice their IPOs to differentiate themselves from low-quality firms and, thus, receive a more favorable market response to subsequent equity offerings. We test this suggestion for 172 industrial firms that made an initial public offering during 1987–1991 and made a subsequent seasoned equity offering within three years of their IPO. We examine two measures of the impact of the hypothesized underpricing signal net of the cost of employing that signal. Inconsistent with the underpricing signal hypothesis, we find no evidence that firms recover the cost of an underpriced IPO in either higher issue proceeds or in greater wealth for the firm's initial owners.

Acquisitions by Japanese corporations are on the rise, a dramatic departure from their traditional aversion to such activity. Loaded with cash, they are formidable players in the new global contest for corporate control. Are the Japanese about to engage in a wave of aggressive corporate takeovers, or are they more likely to act merely as white samurai in battles initiated by others? Will their growing familiarity with the mergers-and-acquisitions business lead to more takeovers inside Japan itself and give Western companies a realistic shot at acquiring a Japanese corporation? By exploring the economic logic underlying business relationships, Japanese Takeovers provides a fresh interpretation of Japanese behavior in the global market. Carl Kester argues there has not been an active market for corporate control in Japan because Japanese companies prefer to build and manage long-term relationships with other firms rather than own those firms' corporate assets. This is true even overseas. Japanese cross-border takeovers have been triggered more by the need to defend valuable business relationships than by their tremendous bidding power. Current trends will further integrate Japan into the global market for corporate control and increase Japanese use of Anglo-American takeover tactics. But successful M&A deal-making with Japanese use of Anglo-American takeover tactics. But successful M&A deal-making with Japanese corporations will hinge more on extensive knowledge of the history and current status of relationships among various stakeholders than on financial acumen. It is imperative that foreigners wishing to be significant players in the Japanese market understand the economic purposebehind the subtle but powerful ties among Japanese corporate stakeholders.

The divesting of corporate assets has become quite popular. Previous studies of divestitures have found conflicting impacts upon shareholders' wealth of the buying firm. This study measures the impacts of product‐line relatedness between the acquiring firm and the divested unit and financial weakness of the selling firm upon the abnormal returns to the acquiring firm. Although the study finds that the impact of financial strength of the seller is ambiguous, the purchase of related assets produces more wealth than does the purchase of unrelated divested units. Further, firms that purchase related divested units have larger proportions of insider ownership.