Are Firm-Advisor Relationships Valuable? A Long-Term Perspective

Abstract

We examine long-term firm-advisor relations using an extended history of debt, equity, and merger transactions. Hard-to-value firms are more likely to maintain dedicated advisor relations (underwriters or merger advisors). Firms that retain predominantly one advisor over their entire transaction history pay higher underwriting/advisory fees, have inferior deal terms, and have lower analyst coverage relative to those that employ many advisors. When we condition on a firm’s information environment as a catalyst for long-term advisor retention, riskier firms obtain better terms when they utilize a variety of advisors, but informationally-opaque firms do not. Our results suggest that only some firms benefit from long-term advisor retention.