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

Abstract

We study the comparative advantage of 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, particularly when facing cross-subsidization inside bulge bracket (multidivisional) banks, proxied by poor performance of their non-M&A departments. Such skilled labor migration improves the performance of boutique banks, 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 corporate organizational structure and labor migration can jointly shape industry dynamics.