Attitudes towards debt in corporate decision-making: evidence from the Covid-19 pandemic

We study the e?ect of an entrepreneur’s attitude towards debt on the financial policies of the businesses they run. Using a survey of 1,009 Finnish SMEs, we test whether a manager’s attitude towards debt affects their likelihood of using debt-based rescue packages (for Covid-19). Our survey asks entrepreneurs about their attitude towards debt, personality traits, expectations for their business in the long and short-run, as well as the measures taken in response to Covid-19. These survey responses are linked with public financial information, allowing us to control for measures of firm viability as well as track long-term firm outcomes. We also conduct an experiment aimed at testing whether framing policies as debt affects the willingness to use debt. We present survey respondents with hypothetical Covid-19 relief policies, randomly framed as either debt or a grant. For instance, one pair of policies (with respondents being shown three pairs) might have a debt based policy allowing firms to borrow and have 75% of debt forgiven if the money is spent on payroll whereas the grant-based equivalent features giving firms a grant for 75% of their payroll expenses. We test whether firms in general have a preference for grant-based policies and whether this effect is stronger for managers with negative attitudes towards debt. We also allow us plan to track ?rm outcomes over the long run in future extensions of this study as well as conduct follow-up studies.