Working Paper: NBER ID: w27624
Authors: Christopher Neilson; John Eric Humphries; Gabriel Ulyssea
Abstract: The Paycheck Protection Program (PPP) extended 669 billion dollars of forgivable loans in an unprecedented effort to support small businesses affected by the COVID-19 crisis. This paper provides evidence that information frictions and the “first-come, first-served” design of the PPP program skewed its resources towards larger firms and may have permanently reduced its effectiveness. Using new daily survey data on small businesses in the U.S., we show that the smallest businesses were less aware of the PPP and less likely to apply. If they did apply, the smallest businesses applied later, faced longer processing times, and were less likely to have their application approved. These frictions may have mattered, as businesses that received aid report fewer layoffs, higher employment, and improved expectations about the future.
Keywords: Paycheck Protection Program; COVID-19; small businesses; information frictions
JEL Codes: H0; J01; J08
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Receiving PPP aid (F35) | Fewer layoffs (J65) |
| Receiving PPP aid (F35) | Improved expectations about future (D84) |
| Receiving PPP aid (F35) | Lower likelihood of bankruptcy or closure (G33) |
| Firm size (L25) | Likelihood of applying for PPP loans (H81) |
| Information frictions (D89) | Access to PPP (H44) |
| Smaller firms (L25) | Longer processing times and lower approval rates (C22) |
| Smaller firms (L25) | Lower employment and higher probabilities of closure or bankruptcy (G33) |