Firm-advisor ties and financial performance in the context of corporate divestiture

The important role financial advisors play in corporate divestiture is widely recognized. However, their influence on firm performance is underexplored. Our study examines three aspects (the number, task relevance, and exclusivity) of firm-advisor ties in explaining firms’ post-divestiture performance. We find that more prior firm-advisor ties and higher task relevance in those ties improve post-divestiture performance (ROA as well as market measures). These positive effects are amplified in divesting firms facing financial decline as compared to firms that are maintaining their historical accounting performance. We find that the exclusivity of firm-advisor ties can be a double-edged sword, revealed by its nonmonotonic effect on post-divestiture performance. This study demonstrates that divesting firms may benefit from hiring familiar advisors when prior ties with the focal advisor are contextually relevant, but not necessarily exclusive. Firms’ pre-restructuring financial conditions can strengthen those relationships.