Abstract
Using an extended history of debt, equity, and merger transactions, we examine the firm-advisor relationship and generally find that it is costly to maintain long-term relations with financial advisors (underwriters or merger advisors). Firms that retain one advisor over their entire transaction history pay higher underwriting/advisory fees, have inferior deal terms, and lower analyst coverage relative to those that employ many advisors. Using financial deterioration and the firm’s information environment as catalysts for why firms may select a single advisor, we observe that even poorly performing firms obtain better terms when they utilize a variety of advisors, but informationally-sensitive firms do not. Our results suggest that only some firms benefit from advisor retention, but for most it does not pay to stay.
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