Changes to Accounting Policies, Financial Reporting Quality and Guaranteed Loans during the Covid-19 Crisis

48 Pages Posted: 28 Jun 2023

See all articles by Bruno Buchetti

Bruno Buchetti

University of Padua - Department of Economics and Management ; European Central Bank (ECB)

Mircea Epure

Universitat Pompeu Fabra (UPF) - Department of Economics and Business; Barcelona School of Economics; UPF Barcelona School of Management

Amedeo Pugliese

University of Padova - Department of Economics and Management

Date Written: June 23, 2023

Abstract

We show that a seemingly innocuous change to accounting policies - extending the filing period of financial statements during the Covid-19 crisis - increased late filers’ access to public guaranteed loans (PGLs) and reduced financial reporting quality (FRQ). We conjecture that, differently than in non-crisis periods, firms delayed filing (i) to exercise reporting subjectivity, useful for obtaining relief mechanisms whose access is based on accounting information; and (ii) because the costs of reduced timeliness are offset by the availability of PGLs. Our analyses on a sample covering close to the universe of Italian SMEs confirm that late filers increased access to PGLs and lowered FRQ. These findings are stronger in industries relying more on relief mechanisms, and for firms whose cost-structures incentivized subjective reporting choices to benefit from post-Covid-19 policy changes. Exploring the channels of reporting subjectivity, we find that late filers increased accrual-based components of income and expenses, reduced amortization charges, and increased capitalization of intangibles. Our key policy implication is that changes to accounting policies during crises are not cost-neutral. This is particularly true when governments concurrently introduce multiple relief mechanisms, and firms do not bear the costs of diminished information quality.

Keywords: Timeliness of financial statements, accounting regulation, public policies, guaranteed loans, Covid-19, crisis

JEL Classification: M41, M42, M48, M49

Suggested Citation

Buchetti, Bruno and Epure, Mircea and Pugliese, Amedeo, Changes to Accounting Policies, Financial Reporting Quality and Guaranteed Loans during the Covid-19 Crisis (June 23, 2023). Available at SSRN: https://ssrn.com/abstract=4489498 or http://dx.doi.org/10.2139/ssrn.4489498

Bruno Buchetti

University of Padua - Department of Economics and Management ( email )

Via del Santo, 33
Padova, 35123
Italy

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Mircea Epure (Contact Author)

Universitat Pompeu Fabra (UPF) - Department of Economics and Business ( email )

Ramon Trias Fargas 25-27
Barcelona, 08005
Spain

HOME PAGE: http://mirceaepure.com

Barcelona School of Economics ( email )

Carrer de Ramon Trias Fargas, 25-27
Barcelona, 08005
Spain

UPF Barcelona School of Management ( email )

Carrer de Balmes, 132, 134
Barcelona, 08008
Spain

Amedeo Pugliese

University of Padova - Department of Economics and Management ( email )

Via del Santo, 33
Padova, 35123
Italy

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