Ownership, Diversity and the Effectiveness of Government‐backed Financial Support during a Systemic Crisis: Evidence from One Million UK SMEs

Using proprietary data on over one million UK Small and Medium‐Sized Enterprises (SMEs) from 2017 to 2024, we examine how ownership composition and director diversity condition the impact of government‐backed Covid‐19 loan programmes on normal (non‐Covid) loan default outcomes. Building on the Behavioural Theory of the Firm and the Attention‐Based View, we develop Attention‐Based Governance (ABG) as a conceptual lens for explaining how SMEs deploy government‐backed slack during systemic crises. Our results show that SMEs with multiple owners from the same family are more effective than single‐owner SMEs in managing Covid support, indicating stronger internal collective oversight and discipline. Furthermore, SMEs with domestic institutional owners and female directors exhibit stronger capability and discipline, while those with foreign institutional owners or foreign directors display higher default risk on normal loans. Additional analysis reveals that foreign‐owned firms are least likely to default on the government‐backed Covid loans themselves. This finding reflects the selective allocation of managerial attention towards highly visible, publicly guaranteed debt to protect reputational capital with global stakeholders. Overall, our study shows how ownership composition and director diversity direct managerial attention and determine whether public funding leads to stronger financial resilience or heightened default risk at the firm level.