Quality of year‐end spending and risk–return trade‐off

This paper examines how the quality of government spending changes at the end of the fiscal year, using administrative data from financing programmes for small and medium‐sized enterprises in South Korea. We assess spending quality based on the average sales growth of recipient firms. We show that while an early budget execution policy reduces year‐end volume spikes, the quality of spending still drops significantly at fiscal deadlines. Both theoretical and empirical results demonstrate that financing agencies shift towards lower‐risk investments at the end of the fiscal year, leading to lower returns even in the absence of spending surges.