Working for the Enemy? The Impact of Investment Bankers on Deal Flow

Abstract

This paper examines the impact of investment banker job changes on the M&A and equity market shares of investment banks. Using a unique sample of job changes between 1998 and 2004, we find, on average, that the bank losing the banker experiences a negative and significant decrease in its industry market share while the gaining bank's market share doesn't change significantly. However, after controlling for deal and bank-level characteristics, hiring a banker from an investment bank with a more prominent industry presence has a positive impact on both equity and M&A market share for the gaining bank and a negative impact on the losing bank's M&A market share. After the banker switches firms, we find a significant amount of business follows the banker from the losing bank to the gaining bank. Pooled and paired wealth effects around the announcement of a switch for gaining and losing banks are positive and significant, suggesting the market views banker additions as value increasing. Overall, our results suggest human capital is a critical component of investment banking deal flow.

Keywords: underwriter reputation, human capital, investment banking, investment bankers

JEL Classification: G24