Exploring the third type of agency problem: an empirical study of the impact of debt suspension programmes on SMEs’ resource allocations

This study explores the third type of agency problem concerning the tension between shareholders and stakeholders. It does so by analysing whether small and medium-sized enterprises (SMEs) eligible for a temporary debt suspension programme favour the short-term interests of their shareholders or stakeholders, or the firm's long-term competitiveness. Using information from an Italian debt moratorium programme aimed at alleviating the financial pressure on SMEs during the financial crisis, we built a rich database of 37,465 limited liability companies eligible for the programme between 2006 and 2015. We then used a difference-in-differences model to analyse the data. Our findings indicate that the debt suspension programme, designed to help eligible firms survive temporary financial constraints, did promote their long-term competitiveness. However, it also produced some undesirable consequences, such as benefiting shareholders in the short term at the expense of other key stakeholders.