Entrepreneur Debt Aversion and Financing Decisions: Evidence from COVID-19 Support Programs

57 Pages Posted: 24 Jun 2020 Last revised: 24 May 2023

See all articles by Mikael Paaso

Mikael Paaso

Erasmus University Rotterdam (EUR)

Vesa Pursiainen

University of St. Gallen; Swiss Finance Institute

Sami Torstila

Aalto University

Date Written: September 1, 2022


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

Paaso, Mikael and Pursiainen, Vesa and Torstila, Sami, Entrepreneur Debt Aversion and Financing Decisions: Evidence from COVID-19 Support Programs (September 1, 2022). Proceedings of Paris December 2021 Finance Meeting EUROFIDAI - ESSEC, Available at SSRN: https://ssrn.com/abstract=3615299 or http://dx.doi.org/10.2139/ssrn.3615299

Mikael Paaso

Erasmus University Rotterdam (EUR) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA

Vesa Pursiainen (Contact Author)

University of St. Gallen ( email )

Swiss Institute of Banking and Finance
Unterer Graben 21
St.Gallen, 9000

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4

Sami Torstila

Aalto University ( email )

P.O. Box 21210
Helsinki, 00101
+358 40 353 8069 (Phone)

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