On the Determinants of Household Debt Maturity Choice
33 Pages Posted: 3 Feb 2011 Last revised: 10 Mar 2016
Date Written: December 18, 2014
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: Suggested Citation