Syndicated Lending, Competition and Relative Performance Evaluation

50 Pages Posted: 21 Mar 2022 Last revised: 14 Apr 2023

See all articles by Thomas Schneider

Thomas Schneider

Old Dominion University - Finance

Philip E. Strahan

Boston College - Department of Finance; National Bureau of Economic Research (NBER)

Jun Yang

University of Notre Dame

Multiple version iconThere are 2 versions of this paper

Date Written: March 2022

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 face higher spreads. These banks, in turn, lose market share to banks less likely to be named in RPE. Our results highlight the tension between the normal benefits of competition versus the need for cooperation in loan syndication.

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Suggested Citation

Schneider, Thomas and Strahan, Philip E. and Yang, Jun, Syndicated Lending, Competition and Relative Performance Evaluation (March 2022). NBER Working Paper No. w29859, Available at SSRN: https://ssrn.com/abstract=4062410

Thomas Schneider (Contact Author)

Old Dominion University - Finance ( email )

Norfolk, VA 23529-0222
United States

Philip E. Strahan

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States
617-552-6430 (Phone)
617-552-0431 (Fax)

HOME PAGE: http://www2.bc.edu/~strahan

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Jun Yang

University of Notre Dame ( email )

Notre Dame, IN
United States

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