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Executive incentives under common ownership

Thomas Schneider
Journal of Corporate Finance 2025 93, 102806
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.

Bank Stress Testing: Public Interest or Regulatory Capture?

Thomas Schneider; Philip E. Strahan; Jun Yang
Review of Finance 2023 27(2), 423-467 open access
We test whether measures of influence on regulators affect stress-test outcomes. The large trading banks—those most plausibly Too Big to Fail—face the toughest tests. Supervisory stress tests have a greater effect on large trading banks’ portfolios; the large banks respond by making more conservative (initial) capital plans; and, despite their more conservative capital plans, the large banks still fail their tests more frequently than other banks. In contrast, while we find little evidence that political or regulatory connections affect the quantitative element of the stress tests, these connected banks do face less scrutiny under its qualitative dimension.

Withdrawn as Duplicate: Bank Stress Testing: Public Interest or Regulatory Capture?

Thomas Schneider; Philip E. Strahan; Jun Yang
Review of Finance 2022 open access
We test whether measures of influence on regulators affect stress test outcomes. The large trading banks—those most plausibly ‘Too Big to Fail’ – face the toughest tests. Supervisory stress tests have a greater effect on large trading banks’ portfolios; the large banks respond by making more conservative (initial) capital plans; and, despite their more conservative capital plans, the large banks still fail their tests more frequently than other banks. In contrast, while we find little evidence that political or regulatory connections affect the quantitative element of the stress tests, these connected banks do face less scrutiny under its qualitative dimension.

Bank stress testing, human capital investment and risk management

Thomas Schneider; Philip E. Strahan; Jun Yang
Journal of Financial Economics 2025 171, 104104
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.

Syndicated Lending, Competition, and Relative Performance Evaluation

Thomas Schneider; Philip E. Strahan; Jun Yang
Review of Financial Studies 2024 37(12), 3802-3834
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.