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

We examine whether and how labor mobility in the M&A advisory industry contributes to the rise of boutique investment banks. Using a novel dataset containing individual investment bankers’ deal advising history and career paths, we find that high-performing bankers are more likely to migrate from large, bulge bracket banks to boutique banks, and that such migration is partly due to the cross-department subsidization within bulge bracket banks. The migration of high-profile bankers impairs (improves) the market share of losing (gaining) banks in those bankers’ specialized industries. These effects are not driven by bank characteristics or industry-level dynamics. Finally, we show that the rise of boutique banks is accompanied by a decline in diversifying mergers in the M&A market and higher returns to the clients they advise.