Did the Paycheck Protection Program Hit the Target?

85 Pages Posted: 26 Apr 2020 Last revised: 7 Jul 2020

See all articles by Joao Granja

Joao Granja

University of Chicago - Booth School of Business

Christos Makridis

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Constantine Yannelis

University of Chicago, Booth School of Business, Finance, Students

Eric Zwick

University of Chicago - Finance

Multiple version iconThere are 3 versions of this paper

Date Written: April 25, 2020

Abstract

This paper takes an early look at 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. We use new data on the distribution of the first round of PPP loans and high-frequency micro-level employment data to consider two dimensions of program targeting. First, we do not find evidence that funds flowed to areas more adversely affected by the economic effects of the pandemic, as measured by declines in hours worked or business shutdowns. If anything, funds flowed to areas less hard hit. Second, we find significant heterogeneity across banks in terms of disbursing PPP funds, which does not only reflect differences in underlying loan demand. The top-4 banks alone account for 36% of total pre-policy small business loans, but disbursed less than 3% of all PPP loans in the first round. Areas that were significantly more exposed to low-PPP banks received much lower loan allocations. We do not find evidence that the PPP had a substantial effect on local economic outcomes—including declines in hours worked, business shutdowns, initial unemployment insurance claims, and small business revenues—during the first round of the program. Firms appear to use first round funds to build up savings and meet loan and other commitments, which points to possible medium-run impacts. As data become available, we will continue to study employment and establishment responses to the program and the impact of PPP support on the economic recovery. Measuring these responses is critical for evaluating the social insurance value of the PPP and similar policies.

Keywords: PPP, stimulus, loan guarantees, CARES, COVID-19, coronavirus

JEL Classification: G21, G38, H32, H81

Suggested Citation

Granja, Joao and Makridis, Christos and Yannelis, Constantine and Zwick, Eric, Did the Paycheck Protection Program Hit the Target? (April 25, 2020). Available at SSRN: https://ssrn.com/abstract=3585258 or http://dx.doi.org/10.2139/ssrn.3585258

Joao Granja

University of Chicago - Booth School of Business ( email )

5807 South Woodlawn Avenue
Room 326
Chicago, IL 60637
United States

Christos Makridis (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States

Constantine Yannelis

University of Chicago, Booth School of Business, Finance, Students ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Eric Zwick

University of Chicago - Finance ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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