On the Determinants of Household Debt Maturity Choice

33 Pages Posted: 3 Feb 2011 Last revised: 10 Mar 2016

See all articles by Wolfgang Breuer

Wolfgang Breuer

RWTH Aachen University

Thorsten Hens

University of Zurich - Department of Banking and Finance; Norwegian School of Economics and Business Administration (NHH); Swiss Finance Institute

Astrid Juliane Salzmann

Catholic University of Lille - IESEG School of Management; RWTH Aachen University - Department of Finance

Mei Wang

WHU - Otto Beisheim School of Management

Date Written: December 18, 2014

Abstract

This paper jointly analyzes a behavioral and a cultural concept to explain household debt portfolio choice. The behavioral 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: culture, debt maturity, household finance, household time preferences

JEL Classification: D90, F30, Z10

Suggested Citation

Breuer, Wolfgang and Hens, Thorsten and Salzmann, Astrid Juliane and Wang, Mei, On the Determinants of Household Debt Maturity Choice (December 18, 2014). Applied Economics 47, 449-465, 2015, Available at SSRN: https://ssrn.com/abstract=1753351 or http://dx.doi.org/10.2139/ssrn.1753351

Wolfgang Breuer

RWTH Aachen University ( email )

Templergraben 55
D-52056 Aachen, 52056
Germany

Thorsten Hens

University of Zurich - Department of Banking and Finance ( email )

Plattenstrasse 32
Zurich, 8032
Switzerland
+41-44 634 37 06 (Phone)

Norwegian School of Economics and Business Administration (NHH)

Helleveien 30
Bergen, 5045
Norway

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Astrid Juliane Salzmann (Contact Author)

Catholic University of Lille - IESEG School of Management ( email )

Socle de la Grande Arche
1 Parvis de la Defense
Puteaux, Paris 92800
France

RWTH Aachen University - Department of Finance ( email )

Templergraben 64
Aachen, 52056
Germany

Mei Wang

WHU - Otto Beisheim School of Management ( email )

Burgplatz 2
Vallender, 56179
Germany

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