University of Birmingham, Birmingham, UK
This paper considers whether company decisions on their advisors promote efficiency in the market for business advisory services. We employ a fixed effects measure of advisor quality and find that no fine-grained measure of performance seems to influence separation and hiring decisions. We do find that, under a rule of thumb measure of advisor performance, firms are more likely to ditch “bad” and “neutral” advisors than “good” ones. Unfortunately, using the same rule of thumb measure, firms appear no more likely to hire “good” quality new advisors than could be expected by chance. As a result, in less than 10% of all separations, the new hire yields an improvement in advisor quality. In short, there is a substantial amount of movement in the market with no benefit.
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