WORKING PAPERS:

• "The dark side of accounting flexibility: firms’ opportunistic response to government aid policies in times of crisis”

with Seraina Anagnostopoulou, Marco M. Mattei & Eleonora Monaco

Abstract: This study investigates firms' responses to beneficial accounting policy changes implemented during crises. In 2020, the Italian government introduced a depreciation suspension policy to mitigate the possible negative financial effects of COVID-19. Using this unique empirical setting, we investigate, for a large sample of private firms, whether affected firms behaved opportunistically by exploiting newly offered flexibility in accounting changes. Additionally, we explore whether corporate governance restrains the opportunistic use of accounting flexibility. Focusing on the 2017-2022 period, we find that during the crisis, opportunistic firms-those with lower financial reporting quality-took advantage of this newly offered accounting flexibility more than less opportunistic firms. Interestingly, we find that this holds true irrespective of the crisis's negative effect on firm performance. The cross-sectional analysis shows that strong corporate governance mechanisms, typically effective in reducing agency problems in stable periods, failed to reduce firms' opportunistic accounting choices during the crisis. Our findings remain robust across alternative specifications and endogeneity tests. Overall, our study provides new insights into the role of accounting flexibility during crises and highlights possible inadvertent effects from strong government policies, and the inadequacy of strong corporate governance mechanisms in limiting managerial discretion and firms' opportunistic behaviour.

Presented at: 2025 EAA Annual Congress, 2024 JAAF Conference, 2024 FMARC Conference (by coauthor), Catòlica Porto Business School (by coauthor), 2023 EUFIN Conference, 13th Financial Reporting workshop and 6th Management Control workshop.

• “The economic effect of IFRS 9 on lending decisions: Evidence from loan-level data”

with Antonio Arfe', Marco M. Mattei & Petya Platikanova

Abstract: We examine how lending decisions are influenced by the adoption of forward-looking loan provisions under IFRS 9, a major financial industry reform. Using private loan level data, we find that riskier and small-sized borrowers are adversely affected by the new accounting regulation through loan pricing and negative peer spillover effects. Financial reporting considerations should not affect sensitivity to clients’ credit risk. However, our results show that IFRS 9 adoption is associated with a “flight to safety” policy in loan selection, where lenders exhibit higher sensitivity to borrower distress, as proxied by the probability of default. This revised lending policy strongly impacts small borrowers, crucial for economic growth and employment in the EU. We find that the IFRS 9 implementation increases sensitivity to default probability for these borrowers, even when they pledge collateral. Exploiting the new staging classification under IFRS 9, we also show that newly issued loans to borrowers with Stage 2 loans have higher spreads. Moreover, the staging reclassification triggers a transmission wave across peers, adversely affecting the cost of financing and potentially their investment opportunities.

Presented at: 2025 EAA Doctoral Colloquium, 2024 EAA Annual Congress, 2024 BAFA Annual Congress and 14th Financial Reporting workshop.

• “Disclosure Regulation and Legal Form Choice”

with Patricia Breuer & Jochen Pierk

Abstract: We examine how financial disclosure requirements influence firms' choice of legal form. Limited liability shields entrepreneurs’ personal assets from downside exposure and thereby encourages risk-taking. Yet, adopting a limited-liability structure comes with costs: limited-liability firms must publicly disclose financial information, whereas firms under alternative legal forms can avoid disclosure. Exploiting the European Union Micro Directive (Directive 2012/6/EU), which allows member states to relax reporting obligations for micro-entities, we demonstrate that easing disclosure obligations (e.g., reduced note disclosures) is associated with an increased likelihood of incorporation under limited liability. This effect is strongest in countries that restrict public access to micro firms’ financial statements and in innovation-intensive industries, consistent with proprietary cost concerns driving the response. Our results suggest that targeted regulatory relief can stimulate incorporation under limited liability, particularly in sectors where proprietary costs are high.

• “Industry Externalities of Activist Short-Selling: Auditor Propensity to Issue Going Concern Opinions"

(single-authored)

Abstract: This study examines whether activist short-selling campaigns generate spillover effects on auditors’ judgment, specifically regarding the issuance of going concern (GC) opinions to non-targeted industry peers. Exploiting activist short-selling campaigns targeting US-listed firms from 2010 to 2021, I find that close peers’ auditors significantly increase the likelihood of issuing modified GC opinions following a campaign. These results indicate that audit responses reflect precautionary measures rather than enhanced monitoring, as evidenced by increased Type I GC errors (issuing GC opinions absent subsequent financial distress). Cross-sectional analyses reveal that auditors’ responses are stronger when close peers exhibit greater reporting opacity and heightened information uncertainty. Further evidence shows that this peer effect also depends on auditors’ characteristics. In particular, it is stronger among Big 4 auditors, consistent with their lower threshold for issuing GC opinions, more pronounced when auditors lack industry specialization, and concentrated in firms without recent auditor changes. Overall, this study highlights auditors’ strategic reactions to external events and underscores the (indirect) consequences of activist short-selling for industry peers and audit outcomes.

Presented at: Erasmus School of Economics research retreat.

PUBLICATIONS:

• “The Italian depreciation suspension policy during the COVID-19 pandemic: Consequences on private firms’ borrowing capacity”

with Marco M. Mattei & Eleonora Monaco, Accounting in Europe (2023), 20(2): 166-193

Abstract: We investigate the consequences of adopting a new accrual-based relief mechanism on private firms’ borrowing capacity. During the COVID-19 pandemic, the Italian government implemented a temporary change in accounting rules that allowed firms to suspend up to the entire amount of their depreciation and amortisation charges. Using a sample of Italian firms from 2018 to 2021 and a difference-in-differences model, we show that the depreciation and amortisation suspension policy (DASP) adopters, compared to non-adopters, access larger loans and negotiate a lower cost of debt than in the pre-DASP period. Our results are robust to additional tests for potential endogeneity and confounding factors such as earnings management and the adoption of other accounting-based relief mechanisms. We provide evidence that accrual-based relief mechanisms have real economic effects and are effective measures to support firms in managing a systemic shock.