On the Determinants of Household Debt Maturity Choice

Wolfgang Breuer, Thorsten Hens, Astrid Juliane Salzmann and Mei Wang

Chapter 20 in Cultural Finance:A World Map of Risk, Time and Money, 2020, pp 511-543 from World Scientific Publishing Co. Pte. Ltd.

Abstract: This article jointly analyses a behavioural and a cultural concept to explain household debt portfolio choice. The behavioural approach explores the role of time preferences on household debt maturity in a theoretical model and a numerical analysis. We derive a positive relationship between the long-term discount factor δ and the optimal maturity of household loans. The cultural approach examines whether national culture is a reasonable predictor for household debt maturity. We show that culture is an important factor for households’ borrowing decisions and has even more predictive power than time preferences. Countries with higher scores on the Hofstede dimension of long-term orientation tend to have shorter household debt maturity. Time preferences incur a primarily mediating role, because the effect of national culture on the borrowing decision is reduced, as the long-term discount factor δ increases.

Keywords: Finance; Culture; International; Time Preferences; Risk Preferences; Decision Theory (search for similar items in EconPapers)
JEL-codes: D9 E7 G4 Z1 (search for similar items in EconPapers)
Date: 2020
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