Invested in Success: Evaluating the Impact of Investor Political Influence on Paycheck Protection Program Loans for COVID-19 Affected Portfolio Companies

Abstract

The economic crisis caused by the COVID-19 pandemic in the United States had many small businesses strapped for cash. This study investigates whether the allocation of federal emergency funding by the 2020 Paycheck Protection Program (PPP) was efficient and fair. Using firm-level data on PPP loans and lobbying data for investors, I answer the question: did portfolio companies of buyout private equity and venture capital companies have an inherent advantage in receiving larger PPP loans? Extending upon work on general and lobbying-affected emergency funds distribution, this paper estimates two multivariate OLS regression models and binary choice probit models to determine the returns to (1) being private equity or venture capital-backed, and (2) past and present investor lobbying for privately backed companies in times of crisis. Empirical results show that companies that are both private equity and venture capital-backed receive higher loans at levels of statistical significance, and of firms that are privately backed, the positive returns to repeated lobbying are especially strong for private equity portfolio firms, venture-backed healthcare startups, and established private equity-backed internet companies. Investment firms that lobbied just on the CARES Act, which authorized the PPP, do not see significantly different loan sizes for their portfolios. These results suggest that investor networks have important trickle-down effects, and that crisis bailouts favor well-connected companies with politically influential investors.