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

Abstract

We study the comparative advantage of firms with focused and multidivisional organizational forms at attracting valuable human capital. Using the M&A advisory industry as a laboratory, we show that high-performing individuals are more likely to migrate to boutique (focused) banks, especially those who are still on the upward trajectory of their career. Such migration is amplified by the cross-subsidization inside bulge bracket (multidivisional) firms, proxied by poor performance of their non-M&A departments. The transition of skilled labor improves the performance of the boutique sector, potentially contributing to the rise of boutiques over the past two decades. Moreover, M&A deal outcomes differ when having boutique advisors. Our findings suggest that corporate organizational structure and labor migration can jointly shape industry dynamics.

Keywords: Investment Bank, Mobility of Human Capital, Mergers and Acquisitions, Organizational Friction

JEL Classification: G24, G34, J24, J62