What Do 25 Million Records of Small Businesses Say about the Effects of the PPP?

Abstract

We utilize Dun & Bradstreet data on firms' financial condition to examine the allocation of Paycheck Protection Program (PPP) loans and their impact. Three main findings emerge. First, firms in better financial condition prior to the COVID outbreak were advantaged in the allocation of PPP loans. Second, firms' financial condition improved significantly and persistently after receiving a loan, and this effect was more pronounced among the smaller and less financially sound firms. Third, we demonstrate empirically that the heterogeneity in firms' financial condition must be accounted for to correctly identify and estimate the overall effect of the PPP.

The Main Street Lending Program: Who Borrowed and How Have They Benefited?

“…Specifically, the mean differences reported in column (1) are computed by first removing the mean value of each variable by state and then by industry.21 As defined, the CCS should be most correlated with delinquency records. This is confirmed for the MSLP firms inWang, Ballance, and Qing (2021) and more generally for all the firms with delinquency data inJoaquim and Wang (2022).…”

“…Given that many MSLP borrowers were also eligible for the PPP, from which many MSLP firms obtained loans that were expected to be largely forgivable, we include indicators for PPP loan recipients depending on when a PPP borrower received that funding. In light of the analysis by Joaquim and Netto (2021) and Joaquim and Wang (2022), we classify the PPP borrowers into three groups: early (those that received loans before the initial funding ran out), middle (those that received loans after newly appropriated funding arrived on April 27 and through May 2, 2020, when the PPP lending volume slowed to a trickle), and late (all the rest). 23 The unprecedented fiscal support provided to small businesses and households in the wake of the COVID-19 outbreak means that the size of the stimulus received relative to the pre-pandemic size of the local economy likely also mattered for the overall economic condition in a locality.…”

“…The indicator for PPP eligibility is omitted because it coincides exactly with the above-500-employee indicator.24 This amount is normalized by the average monthly payroll expenses in 2019 because of the PPP rule that capped the size of a loan at 2.5 months of a firm's payroll or $10 million.25 In fact,Joaquim and Wang (2022) show that this delayed share is the only instrumental variable that retains its explanatory power after firms' pre-COVID-19 financial health is taken into account.…”

The Tail That Wagged the Dog: What Explains the Persistent Employment Effect of the 10-Day PPP Funding Delay?

“…PPP borrowers showed greater employment growth than their peers in the five months following receipt of the loan. Joaquim and Wang (2022) also make the point that the effect of the funding delay is conceptually, and likely empirically, different from the effect of the funding receipt, although they provide no direct empirical evidence.…”