The Payment Protection Program (PPP) granted public firms—which must disclose their finances to the public—eligibility to receive government loans. The PPP offers a unique opportunity to learn about public firms’ incentives to participate in emergency lending programs.

41.8% of eligible public firms chose to participate in this program, compared to 87% of private firms. Moreover, public PPP borrowers tended to be smaller, have less cash, higher leverage and fewer investment opportunities. 

A deeper dive into the data suggests two factors are motivating this behavior. First, public firms face reputational harm from the public if perceived to have accepted a loan they did not need. Second, firms may fear that accepting a loan will send negative signals to the public about their forward-looking performance.