Paper Spotlight: Public Firm Borrowers of the U.S. Paycheck Protection Program

Samuel Rosen

Anna Cororaton

The Paycheck Protection Program (PPP), with over $500 billion distributed over a few months in 2020, was one of the largest stimulus programs in U.S. history. The program was created to help “small businesses” survive the COVID-19 shock. However, in a forthcoming RCFS paper, “Public Firm Borrowers of the U.S. Paycheck Protection Program,” Anna Cororaton and Samuel Rosen document that nearly half of U.S. public firms were eligible for the Paycheck Protection Program (PPP) in 2020 and almost half of those eligible public firms chose to borrow! Nonetheless, loans to public firms comprised a very small fraction of total PPP funds (<0.3%). Even though most public borrowers of the PPP loans were smaller with less cash, higher leverage, and fewer investment opportunities, 13.5% of them ended up returning their loans facing public backlash. In addition, their firm values declined upon PPP loan announcement, and they grew slower in 2020 relative to nonborrowers. Overall, authors show that concerns of reputational harm and negative signaling appear to affect public firms’ participation in government funding.

Spotlight by Isil Erel
Photos courtesy of Anna Cororaton and Samuel Rosen

First published October 15, 2021

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