Evidence reveals that debt-averse entrepreneurs are significantly less likely to utilize government-guaranteed debt, suggesting policy implications.
An entrepreneur’s negative attitude toward 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 10 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. This paper was accepted by Camelia Kuhnen, finance. Funding: This work was financially supported by the Jenny and Antti Wihuri Foundation. S. Torstila thanks the Foundation for Economic Education and the OP Research Foundation for funding. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2022.03007 .
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Paaso et al. (2025) studied this question.
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