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Cited by 176Banking stability, regulation, efficiencyCOVID-19 Pandemic ImpactsMonetary Policy and Economic Impact

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Did the Paycheck Protection Program Hit the Target?

Open access
Granja, João, Makridis, Christos, Yannelis, Constantine, Zwick, Eric·2020·National Bureau of Economic Research
DOI 10.3386/w27095
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Abstract

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 trans-mission depends on the agents delegated to deploy it.

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Research works printed but not linked: 18

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  4. Cororaton, Anna, and Samuel Rosen. 2020. "Public Firm Borrowers of the US Paycheck Pro- tection Program." SSRN working paper.
  5. Edgerton, Jesse. 2012. "Credit Supply and Business Investment During the Great Recession: Evidence from Public Records of Equipment Financing." SSRN working paper.
  6. Erel, Isil, and Jack Liebersohn. 2020. "Does FinTech Substitute for Banks? Evidence from the Paycheck Protection Program." SSRN working paper.
  7. Gale, William. 1990. "Federal Lending and the Market for Credit." Journal of Public Economics, 42: 177-93.
  8. Gale, William. 1991. "Economic Effects of Federal Credit Programs." American Economic Re- view, 81(1): 133-52.
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  10. Griffin, John M, Samuel Kruger, and Prateek Mahajan. 2021. "Did FinTech Lenders Facilitate PPP Fraud?" Available at SSRN 3906395.
  11. House, Christopher, and Matthew Shapiro. 2008. "Temporary Investment Tax Incentives: Theory with Evidence from Bonus Depreciation." American Economic Review, 98(3): 737- 768.
  12. Joaquim, Gustavo, and Felipe Netto. 2020. "Bank Incentives and the Impact of the Paycheck Protection Program." Available at SSRN 3704518.
  13. Kelly, Bryan, Hanno Lustig, and Stijn Van Nieuwerburgh. 2016. "Too-Systemic-to-Fail: What Option Markets Imply about Sector-Wide Government Guarantees." American Economic Re- view, 106(6): 1278-1319.
  14. Li, Lei, and Philip E. Strahan. 2020. "Who Supplies PPP Loans (and Does it Matter)? Banks, Relationships, and the COVID Crisis." SSRN working paper.
  15. Mian, Atif, and Amir Sufi. 2012. "The Effects of Fiscal Stimulus: Evidence from the 2009 Cash for Clunkers Program." Quarterly Journal of Economics, 127: 1107-1142.
  16. Riddick, Leigh A, and Toni M Whited. 2009. "The Corporate Propensity to Save." The Journal of Finance, 64(4): 1729-1766.
  17. Smith, Bruce. 1983. "Limited Information, Credit Rationing, and Optimal Government Lend- ing Policy." American Economic Review, 73(3): 305-18.
  18. Sparks, Evan. 2020. "We Were Economic First Responders." American Bankers Association. ABA Banking Journal, 112(4): 22-31.

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Metadata

Authors
Granja, J., Makridis, C., Yannelis, C., & Zwick, E.
Affiliations
National Bureau of Economic Research (US)
ORCID
Venue
National Bureau of Economic Research
Publisher
National Bureau of Economic Research
Published
2020-05
DOI
10.3386/w27095
OpenAlex
W3019912140
Cited by
176
References
21
Citations by year
2026: 1 · 2025: 13 · 2024: 12 · 2023: 23 · 2022: 35 · 2021: 53 · 2020: 34
Type
report
Language
en
Open access
Locations
National Bureau of Economic Research (publishedVersion)
Funders
  • University of Chicago
  • Australian Centre for Advanced Photovoltaics
Topics
  • Social Sciences › Economics, Econometrics and Finance › Finance › Banking stability, regulation, efficiency
  • Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › COVID-19 Pandemic Impacts
  • Social Sciences › Economics, Econometrics and Finance › General Economics, Econometrics and Finance › Monetary Policy and Economic Impact
Keywords
Paycheck Protection Program, COVID-19 pandemic, small business support, financial intermediation, bank lending, program targeting, employment effects, precautionary saving, regional heterogeneity, policy transmission

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