Public Firm Borrowers of the U.S. Paycheck Protection Program

The risk of being a fallen angel and the corporate dash for cash in the midst of COVID

Anna Cororaton and Samuel Rosen

The Review of Corporate Finance Studies, 2021, vol. 10, issue 4, 641-693

Abstract: We document that nearly half of U.S. public firms were eligible for the Paycheck Protection Program (PPP) in 2020, with 41.8% of those eligible choosing to borrow. Consistent with the program’s objectives, borrowers tended to be smaller with less cash, higher leverage, and fewer investment opportunities. In addition, firm values declined upon PPP loan announcement and borrowers grew slower in 2020 relative to nonborrowers. We document that 13.5% of PPP borrowers, in particular those facing more public scrutiny, returned their loans after public backlash. Overall, concerns of reputational harm appeared to dissuade eligible public firms from availing emergency government funding. (JEL E61, E65, G38, H81)

Date: 2021
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