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

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.