Enjoy today, because nothing is sure about tomorrow. Unintended effects of temporal debt suspension

During the recent impactful global crises (i.e., the financial crisis of 2008-2009 and the Covid- 19 global pandemic), governments promoted temporal debt suspension programs to alleviate the financial pressure on firms. However, while these programs temporarily alleviate the financial problems of the firms, they could also change firms’ behaviors, inducing a short-term orientation and so producing some unintended effects. Specifically, we argue that firms eligible to temporal debt suspension programs change their resources’ allocation, by increasing dividends payout and financial debt leverage and decreasing long-term investments. We tested our predictions by exploiting a quasi-natural experiment produced by a debt suspension program implemented in Italy after 2009 for small and medium enterprises. Overall, our findings suggest that the impact of policies designed to help eligible firms to overcome temporary financial constraints should take into account some unintended negative consequences produced by an increased short-term orientation of eligible firms.