Does relationship matter? The choice of financial advisors

•It investigates choice of advisors in mergers and acquisitions.•Firms with poor deal outcomes are likely to switch financial advisors.•Firms are more likely to choose their underwriters as financial advisors.

This study evaluates whether and how relationships influence acquirers’ choice of financial advisors in mergers and acquisitions (M&As). Specifically, it examines how acquirers’ relationships with their advisors, including their optimism of analyst recommendations and the outcome of their past services, determine the choice of advisors in current transaction. Findings suggest that banking relationships have significant yet limited influence on a firm's choice of M&A advisor. The evidence reveals that firms without recent M&A experience are more likely to choose their underwriters as financial advisors in stock-paid deals, especially when they provide overly optimistic analyst coverage prior to the transactions. Firms with recent M&A experience, however, are more likely to switch financial advisors with poor outcomes in past deal(s).