On the determinants of household debt maturity choice |
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Authors: | Wolfgang Breuer Thorsten Hens Mei Wang |
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Affiliation: | 1. Department of Finance, RWTH Aachen University, Aachen 52056, Germany;2. Institute of Banking and Finance, University of Zurich, Zurich 8032, Switzerland;3. Chair of Behavioral Finance, WHU – Otto Beisheim School of Management, Vallendar 56179, Germany |
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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. |
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Keywords: | culture debt maturity household finance household time preferences |
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