Concierge Treatment from Banks: Evidence from the Paycheck Protection Program

We use the Paycheck Protection Program (PPP) as a laboratory to separate between favoritism and informational advantages in lending relationships. The PPP mutes information frictions because loans are fully guaranteed by the government and banks need not screen borrowers. We find that firms with prior lending relationships or personal connections to bank executives are more likely to obtain PPP loans. These effects lead to allocative distortions that force connected firms to return their loans. We also find that the role of connections weakens when monitoring is tighter. Overall, we offer clean estimates of the important role of favoritism in bank lending with implications for government program design.