Finance During Covid
Paper Session
Friday, Jan. 6, 2023 2:30 PM - 4:30 PM (CST)
- Chair: Niels Gormsen, University of Chicago
Applications or Approvals: What Drives Racial Disparities in the Paycheck Protection Program?
Abstract
We use the 2020 Small Business Credit Survey to study the sources of racial disparities in use of the Paycheck Protection Program (PPP). Black-owned firms are 8.9 percentage points less likely to receive PPP loans than observably similar white-owned firms. About 55% of this take-up disparity is explained by a disparity in application propensity, while the remainder is explained by a disparity in approval rates. The finding in prior research that Black-owned firms were less likely than white-owned firms to borrow from banks and more likely to borrow from fintech lenders is driven entirely by application behavior. Conditional on applying for PPP, Black-owned firms are 9.9 percentage points less likely than white-owned firms to apply to banks and 7.8 percentage points more likely to apply to fintechs. However, they face similar average approval disparities at banks (7.4 percentage points) and fintechs (8.4 percentage points). Sorting by Black-owned firms away from banks and toward fintechs is significantly stronger in more racially biased counties, and the bank approval disparity is also larger in more racially biased counties. Thus, to the extent that automation at fintechs reduces racial disparities in PPP take-up, it does so by mitigating disparities in loan application rates, not loan approval rates.The Value of Value Investors
Abstract
We examine the role of insurance companies as value investors in the corporate bond market. We show that during the COVID-19 liquidity crisis, insurers acted as “buyers of last resort” and increased their corporate bond positions, particularly in bonds facing fire sales by mutual funds. Insurers with more stable insurance funding were more likely to buy, and they bought more from dealers with whom they had prior trading relationships. We find that the stability of the insurance funding of insurers plays an important role for the liquidity conditions in the corporate bond market. Dealers improve their liquidity provision when they have trading relationships with insurers with more stable insurance funding. Our work demonstrates the value of value investors during times of stress.Refinancing Inequality During the COVID-19 Pandemic
Abstract
We study the distribution of savings from mortgage refinancing across income groups during the COVID-19 pandemic. Between February and June 2020, the difference in savings from mortgage refinancing between high- and low-income borrowers was ten times higher than before. This was the result of two factors: high-income borrowers increased their refinancing activity more than otherwise comparable low-income borrowers and, conditional on refinancing, they captured slightly larger improvements in interest rates. Refinancing inequality increases with the severity of the COVID-19 pandemic and is characterized by an under-representation of low-income borrowers in the pool of applications. We estimate a difference of $5 billion in savings between the top income quintile and the rest of the market.Discussant(s)
Valentin Haddad
,
University of California-Los Angeles
Luke Stein
,
Babson College
Kerry Siani
,
Massachusetts Institute of Technology
Erica Xuewei Jiang
,
University of Southern California
JEL Classifications
- G0 - General