A STUDY OF BANK STOCKHOLDER RETURNS DURING PAYCHECK PROTECTION PROGRAM: THE ROLE OF BANK SIZE

Abstract

This study analyzes the impact of the Paycheck Protection Program (PPP) on bank stockholders' returns during the COVID-19 pandemic. The study investigates the performance of the largest and smallest bank-based indices, the KBW and ABAQ, during the implementation of PPP, and tests the hypothesis that bank stock returns increased compared to a pre-event comparison period. The results show that both indices had superior returns during the implementation of the PPP program, but neither index produced abnormal returns for the PPP window when controlled for general market movements. However, bigger banks produced significantly higher returns than smaller banks when the general market moved upwards. The study highlights the role of banks as the main conduit for government assistance during times of crisis and the potential misalignment of their objectives with the public. The authors recommend rating banks with DEI scores to see if banks are meeting government objectives in the distribution of federal funds