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The Effect of the Paycheck Protection Program and Financial Reporting Standards on Bank Risk-Taking

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  • Hailey B. Ballew

    (Jones Graduate School of Business, Rice University, Houston, Texas 77005)

  • Allison Nicoletti

    (The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104)

  • Sarah B. Stuber

    (Mays Business School, Texas A&M University, College Station, Texas 77843)

Abstract

This paper examines the consequences of the paycheck protection program (PPP) for bank risk-taking and whether the shift to the current expected credit loss (CECL) model moderates this effect. We find that the extent of a bank’s PPP participation is associated with relatively greater changes in risk-taking outside of the PPP. We also show that this effect is concentrated in banks that have not early adopted the CECL model and banks with timelier pre-PPP loan loss provisions, suggesting that timelier loan loss recognition constrains risk-taking incentives. Overall, our findings provide insight into the indirect consequences of government stimulus programs administered through banks and the role of accounting in constraining bank risk-taking.

Suggested Citation

  • Hailey B. Ballew & Allison Nicoletti & Sarah B. Stuber, 2022. "The Effect of the Paycheck Protection Program and Financial Reporting Standards on Bank Risk-Taking," Management Science, INFORMS, vol. 68(3), pages 2363-2371, March.
    • Handle: RePEc:inm:ormnsc:v:68:y:2022:i:3:p:2363-2371
    DOI: 10.1287/mnsc.2021.4223
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    References listed on IDEAS

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    Cited by:

    1. Stefano Filomeni, 2024. "The impact of the Paycheck Protection Program on the risk-taking behaviour of US banks," Review of Quantitative Finance and Accounting, Springer, vol. 62(4), pages 1329-1353, May.

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