Concierge treatment from banks: Evidence from the paycheck protection program

Ran Duchin, Xiumin Martin, Roni Michaely and Hanmeng Wang

Journal of Corporate Finance, 2022, vol. 72, issue C

Abstract: We use loans that were extended to public firms through the Paycheck Protection Program (PPP) as a laboratory to separate between favoritism and informational advantages in interpersonal ties between banks and firms. Because PPP loans are guaranteed by the government and banks do not need to carefully screen borrowers, this setting reduces information frictions, allowing us to quantify the effect of favoritism. We find that firms with personal ties to banks are more likely to obtain PPP loans. The role of personal ties weakens when firms are less opaque, but does not vary with banks' corporate governance. We also find that connected firms are more likely to return their loans to avoid regulatory scrutiny. Overall, we offer clean estimates of the role of favoritism in bank lending and highlight the unintended consequence of government programs that use the banking system to allocate capital.

Keywords: Covid-19; Credit; Paycheck protection program (PPP); Agency theory; Favoritism; Relationship lending (search for similar items in EconPapers)
JEL-codes: G21 G28 G32 G38 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:72:y:2022:i:c:s0929119921002467

DOI: 10.1016/j.jcorpfin.2021.102124

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