Syndicated Lending, Competition and Relative Performance Evaluation

Thomas Schneider, Old Dominion University
Philip Strahan
Jun Yang

© 2022 by Thomas Schneider, Philip Strahan, and Jun Yang. All rights reserved.


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.