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Did subsidiary's participation in paycheck protection program affect public parent company? Evidence from short selling

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  • Wu, Yaqi
  • Liu, Long
  • Shen, Si

Abstract

We examine short sellers’ responses to subsidiaries’ participation in the Paycheck Protection Program (PPP). The PPP program is intended to maintain small businesses’ payroll and salary levels. Using the daily short sale volume data from FINRA, we find that short sellers respond to PPP loan announcements. Event study indicates that abnormal short sales peak on the 2nd day after PPP loan announcement. Further regression analysis shows that short sellers short more shares around loan announcement during the 2nd round PPP program. Our findings are supported by the stock returns analysis in Cororaton and Rosen (2021). Overall, we find that short sellers trade on subsidiary's participation of PPP and possess a negative view of 2nd round borrowing.

Suggested Citation

  • Wu, Yaqi & Liu, Long & Shen, Si, 2024. "Did subsidiary's participation in paycheck protection program affect public parent company? Evidence from short selling," Economics Letters, Elsevier, vol. 241(C).
    • Handle: RePEc:eee:ecolet:v:241:y:2024:i:c:s0165176524002751
    DOI: 10.1016/j.econlet.2024.111791
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    References listed on IDEAS

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    1. Anna Cororaton & Samuel Rosen, 2021. "Public Firm Borrowers of the U.S. Paycheck Protection Program [The risk of being a fallen angel and the corporate dash for cash in the midst of COVID]," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 10(4), pages 641-693.
    2. David Autor & David Cho & Leland D. Crane & Mita Goldar & Byron Lutz & Joshua Montes & William B. Peterman & David Ratner & Daniel Villar & Ahu Yildirmaz, 2022. "The $800 Billion Paycheck Protection Program: Where Did the Money Go and Why Did It Go There?," Journal of Economic Perspectives, American Economic Association, vol. 36(2), pages 55-80, Spring.
    3. J. David Brown & John S. Earle, 2017. "Finance and Growth at the Firm Level: Evidence from SBA Loans," Journal of Finance, American Finance Association, vol. 72(3), pages 1039-1080, June.
    4. Haiyan Jiang & Ahsan Habib & Mostafa Monzur Hasan, 2022. "Short Selling: A Review of the Literature and Implications for Future Research," European Accounting Review, Taylor & Francis Journals, vol. 31(1), pages 1-31, January.
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    Cited by:

    1. Hayakawa, Ko & Otsubo, Yoichi & Poon, Ser-huang & Wei, Siliang, 2024. "Vocabulary Herfindahl Index (VocaHIn): Linguistic dominance and collective effervescence in WallStreetBets," Economics Letters, Elsevier, vol. 244(C).

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    More about this item

    Keywords

    Paycheck protection program; Subsidiary company; Parent company; Short selling; Event study;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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