Working for the enemy? The impact of investment banker job changes on deal flow

This paper examines the impact of job changes by prominent investment bankers on the M&A and equity market shares of investment banks. Using a hand-collected sample of job changes between 1998 and 2006, we find that after controlling for deal and bank-level characteristics, hiring a banker from an investment bank with a more prominent industry presence has a positive impact on both equity and M&A market share for the gaining bank and a negative impact on the losing bank's M&A market share. After the banker switches firms, we find a significant amount of business following the banker from the losing bank to the gaining bank, particularly when the relationship is strong between the client firm and the banker. Abnormal returns around the announcement of a banker changing employers are positive and significant for the gaining bank, suggesting that the market views banker additions as value increasing. Overall, our results suggest human capital is a critical component of investment banking deal flow.