Whose Bailout Is It Anyway? Political Connections of Small Businesses vs. Banks in PPP Bailouts

58 Pages Posted: 16 Sep 2021 Last revised: 17 Sep 2022

See all articles by Allen N. Berger

Allen N. Berger

University of South Carolina - Darla Moore School of Business

Mustafa U. Karakaplan

University of South Carolina, Darla Moore School of Business; Stanford University

Raluca A. Roman

Federal Reserve Bank of Philadelphia

Date Written: September 16, 2021

Abstract

We investigate political connections for the over one-half-trillion-dollar Paycheck Protection Program (PPP). We test partisan and nonpartisan political connections of both businesses and banks in the program, investigate the mechanisms for these connections and provide evidence on bank benefits and their channels. Our results suggest banks exercised partisan political connections, influencing funding through lobbying, whereas nonpartisan connections helped small businesses via congressional representatives on a powerful committee. We also find banks profited through multiple channels, complement existing literature findings that small businesses significantly benefitted. Thus, PPP effectively bailed out both banks and small businesses, but through different connections and mechanisms.

Keywords: Political Connections, Political Economy, Bailouts, Paycheck Protection Program (PPP), Small Businesses, Banks, COVID-19 Crisis

JEL Classification: G01, G21, G28, D72

Suggested Citation

Berger, Allen N. and Karakaplan, Mustafa U. and Roman, Raluca A., Whose Bailout Is It Anyway? Political Connections of Small Businesses vs. Banks in PPP Bailouts (September 16, 2021). Available at SSRN: https://ssrn.com/abstract=3920758 or http://dx.doi.org/10.2139/ssrn.3920758

Allen N. Berger

University of South Carolina - Darla Moore School of Business ( email )

1014 Greene St.
Columbia, SC 29208
United States
803-576-8440 (Phone)
803-777-6876 (Fax)

Mustafa U. Karakaplan (Contact Author)

University of South Carolina, Darla Moore School of Business ( email )

1014 Greene Street
Columbia, SC 29208
United States

Stanford University ( email )

Stanford, CA 94305
United States

Raluca A. Roman

Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

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