Abstract
I study the impact of previous employment networks on private equity firms‟ choice of financial advisors. In a unique micro-level data set I observe 1,326 individuals, who have been directly involved in 1,285 transactions and their changes of occupation from financial advisors to private equity professionals. I find that the social networks arising from these labor market movements affect private equity firms' choice of financial advisors as well as the sourcing of information and deals from sell-side advisors to private equity firms. On average, the unconditional probability to be mandated as a financial advisor increases by 2.8 percentage points from 3.6% to 6.4% if a former employee of the financial advisor is among those private equity professionals who constitute the private equity deal team for that particular transaction. Private equity firms, on their part, have a 19.0 percentage points higher probability to be included in a bidding process and a 13.5 percentage points higher probability of winning an auction when their former employers conduct the auction. Moreover, I find that firms pay lower revenue transaction multiples in acquisitions where their former employers advise them compared to other deals.