Working Paper: NBER ID: w29748
Authors: Sergey Chernenko; David S. Scharfstein
Abstract: Using a large sample of Florida restaurants, we document significant racial disparities in borrowing through the Paycheck Protection Program (PPP) and investigate the causes of these disparities. Black-owned restaurants are 25% less likely to receive PPP loans. Restaurant location explains 5 percentage points of this differential. Restaurant characteristics explain an additional 10 percentage points of the gap in PPP borrowing. On average, prior borrowing relationships do not explain disparities. The remaining 10% disparity is driven by a 17% disparity in PPP borrowing from banks, which is partially offset by greater borrowing from nonbanks, largely fintechs. Disparities in PPP borrowing cannot be attributed to lower awareness of PPP loans or lower demand for PPP loans by minority-owned restaurants. Black-owned restaurants are significantly less likely to receive bank PPP loans in counties with more racial bias. In these counties, Black-owned restaurants are more likely to substitute to nonbank PPP loans. This substitution, however, is not strong enough to eliminate racial disparities in PPP borrowing. Finally, we show that our findings apply more broadly across industries in a sample of firms that were likely eligible for PPP.
Keywords: Paycheck Protection Program; PPP; racial disparities; minority-owned businesses; COVID-19
JEL Codes: G01; G21; G23; G28
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| black-owned restaurants (N87) | PPP loans (H81) |
| location factors (R32) | disparity in PPP loans (J79) |
| firm characteristics (L20) | disparity in PPP loans (J79) |
| racial bias (J15) | PPP loan processing (H81) |
| preexisting borrowing relationships (F34) | PPP loans (H81) |