Bremsstrahlung isochromat spectroscopy (BIS) along with ultraviolet and X-ray photoelectron spectroscopy (UPS and XPS) has been employed to investigate the electron states of Pd and Ag deposited on amorphous graphite at different coverages. The metal core level binding energies increase with decreasing cluster size while the UPS valence bands show a decrease in the 4d states at E(F) accompanied by a shift in the intensity maximum to higher binding energies. BIS measurements show the emergence of new states closer to E(F) with increase in the cluster size. It is pointed out that the observed spectral shifts cannot be accounted for by final-state effects alone and that initial-state effects have a significant role. It therefore appears that a decrease in cluster size is accompanied by a metal-insulator transition.