Big Fish in Small Ponds: Human Capital Migration and the Rise of Boutique Banks

Abstract

Over the past two decades, the M&A advisory industry has seen an increasing presence of boutique banks, whose market share reached over 40% in 2018. In this paper, we examine whether and how labor mobility contributes to the rise of boutique M&A advisors. Using several novel datasets containing deal-advising history and career paths of individual investment bankers, we show that high-performing individuals are more likely to migrate from their large, bulge bracket employers to boutique banks. Following their transition, the performance of losing (gaining) banks deteriorates (improves) in the specialized industries of these individuals. To establish causality, we exploit the cross-department subsidization within bulge bracket banks as a plausibly exogenous shock to the supply of M&A bankers to boutique advisors. When exploring potential channels, we find that both former clients and former colleagues migrate with the high-performing bankers who have transitioned to boutique firms. Finally, the rise of boutique banks is accompanied by a better deal outcome for their clients. Boutique banks also appear to foster the human capital development of their high-quality employees to a greater extent than bulge bracket banks. Our findings highlight the role of human capital transition in aggregating and redrawing the boundary of M&A advisory firms, and consequently, affecting how deals are advised in the market for corporate control.