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Syndicated Lending, Competition, and Relative Performance Evaluation

Author

Listed:
  • Thomas Schneider
  • Philip E Strahan
  • Jun Yang

Abstract

Relative performance evaluation (RPE) intensifies competitive pressure by tying executive compensation to the profits of rivals. We show that these contracts make loan syndication harder by reducing banks’ willingness to participate in loans underwritten by banks named in their RPE contracts. Lead arranger banks, which are more frequently named in RPE, hold larger shares of the loans they syndicate, and their borrowers receive smaller and fewer loans and face higher spreads. Our results highlight the tension between the normal benefits of competition versus the need for cooperation in loan syndication.

Suggested Citation

  • Thomas Schneider & Philip E Strahan & Jun Yang, 2024. "Syndicated Lending, Competition, and Relative Performance Evaluation," The Review of Financial Studies, Society for Financial Studies, vol. 37(12), pages 3802-3834.
    • Handle: RePEc:oup:rfinst:v:37:y:2024:i:12:p:3802-3834.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhae052
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    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation

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