How Information Frictions Impacted the Efficacy of the Paycheck Protection Program in Mitigating the Economic Constraints Faced by Small Businesses from COVID-19

This research uses PPP loan data from the Small Business Administration (SBA) to investigate whether information frictions contributed to disproportionate PPP loan disbursements to certain racial and socioeconomic groups. This analysis makes several contributions. First, it adds to the body of literature on the PPP program, the impact of COVID-19 on small businesses, and government subsidy programs designed to mitigate economic crises. Prior research on the PPP program examined whether loans were allocated to business owners based on socio-demographic factors. Atkins et al. (2022) find a negative relationship between a community’s minority share of business owners and disbursed PPP loan amounts. Likewise, Howell et al. (2021) report that minority business owners were less likely to obtain PPP loans. We build on these existing studies by conceptualizing information frictions. To our knowledge, this is the first study to conceptualize information frictions into three main drivers, socio-demographic bias, financial institution access, and digital literacy, and to explain the relationship between information frictions and the efficacy of the PPP program.