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On the determinants of household debt maturity choice

Author

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  • Wolfgang Breuer
  • Thorsten Hens
  • Astrid Juliane Salzmann
  • Mei Wang

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.

Suggested Citation

  • Wolfgang Breuer & Thorsten Hens & Astrid Juliane Salzmann & Mei Wang, 2015. "On the determinants of household debt maturity choice," Applied Economics, Taylor & Francis Journals, vol. 47(5), pages 449-465, January.
    • Handle: RePEc:taf:applec:v:47:y:2015:i:5:p:449-465
    DOI: 10.1080/00036846.2014.972547
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    Cited by:

    1. Lu Yang & Yuhuang Zheng & Rui Chen, 2021. "Who has a cushion? The interactive effect of social exclusion and gender on fixed savings," Journal of Consumer Affairs, Wiley Blackwell, vol. 55(4), pages 1398-1415, December.
    2. Gaganis, Chrysovalantis & Hasan, Iftekhar & Pasiouras, Fotios, 2020. "National culture and housing credit," Journal of Empirical Finance, Elsevier, vol. 56(C), pages 19-41.
    3. Wang, Mei & Rieger, Marc Oliver & Hens, Thorsten, 2016. "How time preferences differ: Evidence from 53 countries," Journal of Economic Psychology, Elsevier, vol. 52(C), pages 115-135.
    4. T. van der Valk, 2019. "Quid pro quo: the institutional environment and the allocation of household wealth," Working Papers 19-25, Utrecht School of Economics.
    5. Rieger, Marc Oliver, 2022. "Uncertainty avoidance, loss aversion and stock market participation," Global Finance Journal, Elsevier, vol. 53(C).
    6. Agnieszka Strzelecka & Danuta Zawadzka, 2020. "Why Households Borrow Money? Socio-Economic Factors Affecting Households Debts: A Model Approach," European Research Studies Journal, European Research Studies Journal, vol. 0(Special 2), pages 820-839.
    7. Marc Oliver Rieger & Mei Wang & Thorsten Hens, 2020. "Universal Time Preference," Working Paper Series 2020-07, University of Trier, Research Group Quantitative Finance and Risk Analysis.

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