The Targeting of the Paycheck Protection Program

This paper takes an early look at a large and novel small business support program that was part of the initial crisis response package, the Paycheck Protection Program (PPP).

First, we find no evidence that funds flowed to areas that were more adversely affected by the economic effects of the pandemic, as measured by declines in hours worked or business shutdowns. If anything, we find some suggestive evidence that funds flowed to areas less hard hit. The fraction of establishments receiving PPP loans is greater in areas with better employment outcomes, fewer COVID-19 related infections and deaths, and less social distancing.

Second, lender heterogeneity in PPP participation appears to be one reason why we find a weak correlation between economic declines and PPP lending. For example, we find that areas that were significantly more exposed to banks whose PPP lending shares exceeded their small business lending market shares received disproportionately larger allocations of PPP loans. Underperforming banks—whose participation in the PPP underperformed their share of the small business lending market—account for two-thirds of the small business lending market but only twenty percent of total PPP disbursements. The top-4 banks alone account for 36% of the total number of small business loans but disbursed less than 3% of all PPP loans.

Our results highlight the importance of banks as a conduit for public policy interventions. Measuring these responses is critical for evaluating the social insurance value of the PPP and similar policies.