Did the paycheck protection program hit the target?

By João Granja, Christos A. Makridis, Constantine Yannelis, Eric Zwick. Journal of Financial Economics, 2020

296 citations recorded by the source corpus.

This paper provides a comprehensive assessment of financial intermediation and the economic effects of the Paycheck Protection Program (PPP), a large and novel small business support program that was part of the initial policy response to the COVID-19 pandemic in the US. We use loan-level microdata for all PPP loans and high-frequency administrative employment data to present three main findings. First, banks played an important role in mediating program targeting, which helps explain why some funds initially flowed to regions that were less adversely affected by the pandemic. Second, we exploit regional heterogeneity in lending relationships and individual firm-loan matched data to study the role of banks in explaining the employment effects of the PPP. We find the short- and medium-term employment effects of the program were small compared to the program’s size. Third, many firms used the loans to make non-payroll fixed payments and build up savings buffers, which can account for small employment effects and likely reflects precautionary motives in the face of heightened uncertainty. Limited targeting in terms of who was eligible likely also led to many inframarginal firms receiving funds and to a low correlation between regional PPP funding and shock severity. Our findings illustrate how business liquidity support programs affect firm behavior and local economic activity, and how policy transmission depends on the agents delegated to deploy it.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/45eb6c3b965ade6d382cdd004fc9df8c3f612835

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Citations in the corpus

Sheltering in place and domestic violence: Evidence from calls for service during COVID-19 (2020, unknown): “The labor market impacts were closely followed by sweeping economic policies directed towards both firms and households (Granja et al., 2020; Ganong et al., 2020).”
The Targeting and Impact of Paycheck Protection Program Loans to Small Businesses (2020, unknown): “Recent research has studied the effects of PPP loans, exploiting variation in PPP loan receipt intensity between firms of different sizes (Chetty et al. 2020, Autor et al. 2020) and locations (Granja et al. 2020, and Bartik et al. 2020c).”
THE ECONOMIC IMPACTS OF COVID-19: EVIDENCE FROM A NEW PUBLIC DATABASE BUILT USING PRIVATE SECTOR DATA (2023, background): “And they are being used by other researchers to analyze a broad range of issues: constructing price indices that account for changes in consumption bundles (Cavallo 2020), analyzing the effects of political views on economic outcomes (Makridis and Hartley 2020), estimating the effects of the PPP on ”
Bank liquidity provision across the firm size distribution (2020, unknown): “firms’ balance sheets, Granja et al. (2020) and Chetty et al.”
The Effects of COVID-19 on U.S. Small Businesses: Evidence from Owners, Managers, and Employees (2020, unknown): “…information and were more likely to apply for government programs and banks were prioritizing customers with preexisting relationships even for government programs such as the Paycheck Protection Program (see Granja et al. 2020, Humphries et al. 2020b, Joaquim and Netto 2020, Howell et al. 2021).12”
The Credit Line Channel (2020, unknown): “Second, the larger banks that experienced a higher rate of credit line drawdowns in our data also extended fewer PPP loans on average (Granja et al., 2020).”
Working Remotely and the Supply-Side Impact of COVID-19 (2020, unknown): “…and the degree workers were affected by the pandemic is likely at odds with an optimal policy prescription (see, e.g. Guerrieri et al. 2020) but consistent with evidence from Granja et al. (2020) suggesting that PPP loans do not disproportionately flow to regions which are more adversely affected.”
Understanding the impact of COVID-19 intervention policies on the hospitality labor market (2020, unknown): “Unfortunately, the first round of the Paycheck Protection Program (PPP) did not achieve all of its intended effects (Granja et al., 2020): many of the small businesses that needed funding did not receive it.”
Who Supplies PPP Loans (and Does It Matter)? Banks, Relationships, and the COVID Crisis (2020, background): “For example, Granja et al. (2020) find that more PPP first-round funds flow into localities less affected by COVID, and that the effects of the PPP program on employment were small relative to the scale of the funds allocated.”
Policies to Support Businesses through the COVID-19 Shock: A Firm Level Perspective (2021, unknown): “…the Coronavirus Aid, Relief, and Economic Security (CARES) Act’s PPP did not flow to areas more adversely affected by the economic effects of the pandemic, as measured by declines in hours worked or business shutdowns, but most likely to less hard-hit businesses and locations (Granja et al. 2020).”