Concierge Treatment from Banks: Evidence from the Paycheck Protection Program

44 Pages Posted: 2 Feb 2021 Last revised: 10 Mar 2021

See all articles by Ran Duchin

Ran Duchin

Boston College - Carroll School of Management

Xiumin Martin

Washington University in Saint Louis - Olin School of Business

Roni Michaely

The University of Hong Kong; ECGI

Hanmeng Ivy Wang

Washington University in Saint Louis, John M. Olin Business School, Students

Date Written: February 21, 2021

Abstract

We use the subset of Paycheck Protection Program (PPP) loans that were extended to public firms as a laboratory to separate between favoritism and informational advantages in lending relationships. Because PPP loans are guaranteed by the government and banks do not need to carefully screen borrowers, this setting reduces information frictions, allowing us to quantify the effect of favoritism. We find that firms with prior lending relationships or personal connections to bank executives are more likely to obtain PPP loans. Consistent with favoritism, the role of connections weakens when monitoring is tighter, and, moreover, connected firms are forced to return their loans. Overall, we offer clean estimates of the role of favoritism in bank lending.

Keywords: COVID-19, credit, Paycheck Protection Program (PPP), agency theory, favoritism, relationship lending

JEL Classification: G21, G28, G32, G38

Suggested Citation

Duchin, Ran and Martin, Xiumin and Michaely, Roni and Wang, Hanmeng, Concierge Treatment from Banks: Evidence from the Paycheck Protection Program (February 21, 2021). Available at SSRN: https://ssrn.com/abstract=3775276 or http://dx.doi.org/10.2139/ssrn.3775276

Ran Duchin (Contact Author)

Boston College - Carroll School of Management ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Xiumin Martin

Washington University in Saint Louis - Olin School of Business ( email )

Saint Louis, MO 63130
United States

Roni Michaely

The University of Hong Kong ( email )

Pokfulam Road
Hong Kong, Pokfulam HK
China

ECGI ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Hanmeng Wang

Washington University in Saint Louis, John M. Olin Business School, Students ( email )

St. Louis, MO
United States

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