Indirect Costs of Government Aid and Intermediary Supply Effects: Lessons from the Paycheck Protection Program

89 Pages Posted: 3 Mar 2021

See all articles by Manju Puri

Manju Puri

Duke University - Fuqua School of Business; NBER

Tetyana Balyuk

Emory University - Goizueta Business School

Nagpurnanand Prabhala

The Johns Hopkins Carey Business School

Multiple version iconThere are 3 versions of this paper

Date Written: November 2020

Abstract

The $669 billion Paycheck Protection Program (PPP) provides highly subsidized financing to small businesses. The PPP is a positive shock in financing supply to the small, highly constrained publicly listed firms in our sample and has average positive treatment effects. Yet, uptake is not universal. In fact, several firms return PPP funds before use, and curiously, experience positive valuation effects when they do so. These firms desire and the markets value the release from government oversight even if it means giving up cheap funding. The PPP is also a demand shock to the banks making PPP loans. Intermediary supply effects shape PPP delivery. Larger borrowers enjoy earlier PPP access, an effect that is more pronounced in big banks. The results have implications for policy design, the costs of being public, and bank-firm relationships.

Keywords: Covid-19, Coronavirus, Paycheck Protection Program, PPP, SBA

JEL Classification: G32, G38, H81, E61

Suggested Citation

Puri, Manju and Balyuk, Tetyana and Prabhala, Nagpurnanand, Indirect Costs of Government Aid and Intermediary Supply Effects: Lessons from the Paycheck Protection Program (November 2020). FDIC Center for Financial Research Paper No. 2021-01, Available at SSRN: https://ssrn.com/abstract=3796210 or http://dx.doi.org/10.2139/ssrn.3796210

Manju Puri (Contact Author)

Duke University - Fuqua School of Business ( email )

100 Fuqua Drive
Box 90120
Durham, NC 27708-0120
United States
919-660-7657 (Phone)

NBER

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Tetyana Balyuk

Emory University - Goizueta Business School ( email )

1300 Clifton Road
Atlanta, GA 30322-2722
United States

Nagpurnanand Prabhala

The Johns Hopkins Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States
+1 410 234 4532 (Phone)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
48
Abstract Views
180
PlumX Metrics