Did Bank Stockholders Get Superior Returns Due to the Implementation of the Paycheck Protection Program? An Analysis of Bank Indices Based on Size

Abstract

The study examines the impact of the implementation of the Paycheck Protection Program on the largest (KBW) and smallest (ABAQ) bank-based indices. Since the Paycheck Protection Act was created to help businesses during the COVID-19 pandemic, the money was disseminated by the US Federal government using commercial banks as the main conduit. Using t-tests and non-parametric tests, we find that both indices had superior returns during the implementation of the PPP program. This is supported by the results of a dummy variable regression. However, when controlled for general market movements represented by NASDAQ Composite daily returns, neither KBW nor ABAQ produced abnormal returns for the PPP window. We further report that there are some superior returns for the bigger banks when general markets moved higher, which arguably received greater sums of money and distributed them more inconsistently with fiscal goals as compared with their smaller counterparts during the implementation of the PPP program.