Did the Paycheck Protection Program Hit the Target?

121 Pages Posted: 26 Apr 2020 Last revised: 22 Sep 2021

See all articles by Joao Granja

Joao Granja

University of Chicago - Booth School of Business

Christos Makridis

Stanford University

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 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 transmission depends on the agents delegated to deploy it.

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)

Stanford University ( email )

Stanford, CA 94305
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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