Edmund Cogswell Converse Professor of Finance and Banking
David Scharfstein is the Edmund Cogswell Converse Professor of Finance and Banking at Harvard Business School. Scharfstein has published on a broad range of topics in finance, including corporate investment and financing behavior, risk management, financial distress, capital allocation, and venture capital. His current research focuses on financial intermediation and financial regulation, including research on housing finance, financial system risk, bank lending and funding, and the growth of the financial sector. Scharfstein is currently a research associate of the National Bureau of Economic Research. During 2017, he was president of the American Finance Association. In 2009-2010, he was a senior advisor to the U.S. Treasury Secretary. He previously was a member of the Financial Advisory Roundtable of the Federal Reserve Bank of New York and a director of the M&T Bank Corporation. From 1987- 2003 he was a finance professor at the MIT Sloan School of Management. Scharfstein received a Ph.D. in Economics from MIT and an A.B. from Princeton University.
Recent Working Paper
Sergey Chernenko, Nathan Kaplan, Asani Sarkar, and David S. Scharfstein, 2022. Applications or Approvals: What Drives Racial Disparities in the Paycheck Protection Program?
We use the 2020 Small Business Credit Survey to study the sources of racial disparities in use of the Paycheck Protection Program (PPP). Black-owned firms are 8.9 percentage points less likely to receive PPP loans than observably similar white-owned firms. About 55% of this take-up disparity is explained by a disparity in application propensity, while the remainder is explained by a disparity in approval rates. The finding in prior research that Black-owned firms were less likely than white-owned firms to borrow from banks and more likely to borrow from fintech lenders is driven entirely by application behavior. Conditional on applying for PPP, Black-owned firms are 9.9 percentage points less likely than white-owned firms to apply to banks and 7.8 percentage points more likely to apply to fintechs. However, they face similar average approval disparities at banks (7.4 percentage points) and fintechs (8.4 percentage points). Sorting by Black-owned firms away from banks and toward fintechs is significantly stronger in more racially biased counties, and the bank approval disparity is also larger in more racially biased counties. Thus, to the extent that automation at fintechs reduces racial disparities in PPP take-up, it does so by mitigating disparities in loan application rates, not loan approval rates.
Recent Working Paper
Sergey Chernenko and David Scharfstein, 2021. Racial Disparities in the Paycheck Protection Program
Using a large sample of Florida restaurants, we document significant racial disparities in borrowing through the Paycheck Protection Program (PPP) and investigate the causes of these disparities. Black-owned restaurants are 25% less likely to receive PPP loans. Restaurant location explains 5 percentage points of this differential. Restaurant characteristics explain an additional 10 percentage points of the gap in PPP borrowing. On average, prior borrowing relationships do not explain disparities. The remaining 10% disparity is driven by a 17% disparity in PPP borrowing from banks, which is partially offset by greater borrowing from nonbanks, largely fintechs. Disparities in PPP borrowing cannot be attributed to lower awareness of PPP loans or lower demand for PPP loans by minority-owned restaurants. Black-owned restaurants are significantly less likely to receive bank PPP loans in counties with more racial bias. In these counties, Black-owned restaurants are more likely to substitute to nonbank PPP loans. This substitution, however, is not strong enough to eliminate racial disparities in PPP borrowing. Finally, we show that our findings apply more broadly across industries in a sample of firms that were likely eligible for PPP.