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 merger and acquisition (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. This paper was accepted by Victoria Ivashina, finance. Funding: W. Wang gratefully acknowledges financial support from the Daniel C. Smith Fellowship. Supplemental Material: Data and the internet appendix are available at https://doi.org/10.1287/mnsc.2021.03829 .