Entrepreneur Debt Aversion and Financing Decisions: Evidence from COVID-19 Support Programs
47 Pages Posted: 24 Jun 2020 Last revised: 18 Oct 2021
Date Written: January 19, 2021
An entrepreneur's negative attitude towards debt - debt aversion - affects the financing decisions of the businesses they run. Controlling for a range of observable traits, firms run by highly debt-averse entrepreneurs are about nine percentage points less likely to use debt. The same entrepreneurs are also almost 25% less likely to take up government-guaranteed debt during the COVID-19 crisis. These firms show less interest in COVID-19 support policies if they perceive them to involve debt, based on experiments randomizing the framing and labeling of otherwise nearly identical, hypothetical COVID-19 support policies as debt or grants.
Keywords: debt aversion, small business loans, liquidity, COVID-19, government support
JEL Classification: G02, G32, H12, H25, H32
Suggested Citation: Suggested Citation