Relative performance evaluation (RPE) increases competition and limits pay-for-luck by rewarding executives for outperforming rivals. This study tests whether institutional investors reduce RPE use when they own stakes in competing firms. Contrary to this, the Big Three asset managers – BlackRock, Vanguard, and State Street – demonstrate strong preferences for RPE, reflected in portfolio firms’ RPE adoptions, say-on-pay vote support, and peer group selections. No evidence suggests that common ownership by these or other institutional investors reduces RPE, as confidence bounds and point estimates are near zero. Overall, the rising prevalence of RPE challenges concerns about anticompetitive effects from common ownership.

This paper studies banks’ investment in risk management human capital following the Global Financial Crisis and the advent of stress testing. Our results suggest that ‘Too Big to Fail’ distortions may have weakened large banks’ incentive to invest in risk management talent. Stress testing, which focuses on the largest banks, spurred demand for skilled quantitative risk managers, but only narrowly in anticipation of a test and following poor performance on a test. Stress testing does not affect demand for the over 90 % of risk management jobs not linked to passing tests, limiting its effectiveness in improving risk management practices.

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.