Your Former Employees Matter: Private Equity Firms And Their Financial Advisors

The author studies the impact of social networks on private equity firms' choice of financial advisors. In a unique dataset the author observes all individuals who have been involved in acquisitions and their changes of occupation from financial advisors to private equity professionals. The author finds that the social networks arising from these labor market movements affect private equity firms' choice of financial advisors as well as the sourcing of deals from sell-side advisors. The likelihood that a financial advisor is mandated to advise is increased if the private equity professionals responsible for the deal have previously worked for that financial advisor.