Scientific Responsible: AMEDEO PUGLIESE

Project objectives: The use of public policies to support businesses is widespread across all states. The increasing incidence of subsidies on GDP necessitates an analysis of expected costs and benefits. Especially during times of crisis, governments support businesses by either increasing direct subsidies or modifying accounting rules to ensure stability and safeguard employment. This research contributes to the debate on the effectiveness of government interventions during crises through an empirical analysis aimed at: (a) examining the impact of subsidies on companies' accounting choices, which may opportunistically reduce transparency in order to access public funds, and (b) evaluating the effectiveness of changes to accounting regulations and their consequences for access to credit and public finance. The empirical analysis is divided into three phases: (1) estimating the effects of public interventions on the quality of companies' financial statements; (2) assessing the effectiveness of government interventions by leveraging the heterogeneity (temporal and resource-based) of the mechanisms adopted by European governments; and (3) estimating the long-term effects on companies' access to credit, on bank balance sheets and non-performing loans, and on costs for public finances related to callable guaranteed loans. The results are significant for the scientific community and policymakers in light of the cyclical nature of systemic crises (five in 30 years) that require substantial public interventions. Primarily, they enhance understanding of the risks associated with different public support mechanisms that generate moral hazard among various actors. Two examples illustrate the magnitude of the issue: companies have incentives to exploit changes in accounting regulations, undermining the quality of financial reporting; banks have incentives to transfer part of the (pre-existing) credit risk to the state and thus to public finances.

Grantor: MUR - PRIN

Duration: 28/9/2023 - 27/9/2025

Partners:

• Bicocca University of Milan
• Cattolica University of Milan
• University of Padova, dSEA

dSEA staff involved:

• Bruno Maria Parigi
• Vincenzo Anna Alexander
• Marco Ghitti
• Luciano Giovanni Greco
• Paola Piccinni
• Amedeo Pugliese