Research

How has private credit reshaped human capital in the financial intermediation sector? We document a large migration of personnel from banks to private credit, accompanied by a substantial reshuffling across functions and hierarchies. Exploiting bank stress tests as a shock that induces outflows, we show that movers to private credit attain higher seniority and compensation and experience lower turnover rates. Private credit firms adopt less hierarchical structures with higher senior-to-junior ratios, and allocate more talent towards due diligence roles. Importantly, senior personnel in private credit are more concentrated in due diligence, contrasting with banks where greater focus is placed on deal sourcing and risk control. Private credit loans feature more monitoring and bespoke contractual terms, and these differences are largely explained by the observed organizational and functional differences. Overall, the growth of private credit has implications for not only a reallocation of financial capital but also a reorganization of human capital into structures that enable more information-sensitive lending.

We construct a dataset of firms' explicit leverage targets from earnings conference calls. Managers overwhelmingly target debt-to-EBITDA, not the debt-to-assets ratio standard in the academic literature, and cite financial flexibility as their primary motivation. Targets are stable over time, centering around 3x, and far less dispersed than actual leverage. Using these observed targets, we find that firms close 56-77% of the leverage gap within a year, reconciling the slow adjustment speeds documented in prior work. The mechanism of adjustment, however, differs by direction: overleveraged firms delever primarily through EBITDA growth rather than debt repayment, consistent with a leverage ratchet effect, while underleveraged firms lever up through active borrowing. Together, our findings demonstrate that firms actively manage toward cash-flow-based leverage targets, providing support for trade-off theory.

This paper examines how tax policy affects syndicated loan terms. Using the Tax Cuts and Jobs Act (TCJA) as a natural experiment, we analyze changes in loan terms for firms facing policy changes that reduce the tax benefits of debt. We find that borrowers facing the greatest loss of tax benefits experience a countervailing reduction in the interest rate premium charged by lenders. We observe no changes in non-price terms such as covenants, maturities, or collateral requirements, and no evidence that the change in loan spreads is attributable to changes in borrower fundamentals. Together, the results suggest that lenders absorb a portion of borrowers' lost tax benefits, without imposing stricter loan terms. Our findings suggest a novel channel by which tax policy affects debt contracting.