Michael Halling

Working Papers

Dangl, T., Halling, M., Salbrechter, S., Firm-Specific Climate Risk Estimated from Public News, July 2023.

Abstract: We estimate firm-specific exposures to climate risk from public news covering a period of 20 years by applying a novel topic modeling algorithm. We differentiate between regulatory (or transition) and physical climate risks and document that financial markets price both risks. Our study is the first to find a positive and statistically significant risk premium for physical climate risk. For regulatory climate risk we find a regime shift occurring around the year 2012 reconciling the conflicting evidence in the literature. While the risk premium is positive in the earlier period, it becomes significantly negative in the later one. A long-short portfolio that is long “green” firms and short “brown” firms, as identified by their topic exposures in public news, constitutes a priced risk factor and shows a surprisingly strong correlation with an ESG-sorted benchmark portfolio.  [download] 

 

Dangl, T., Halling, M., Yu, J., Zechner, J., Stochastic Social Preferences and Corporate Investment Decisions, June 2023.

Abstract: This paper develops a dynamic general equilibrium model with stochastic social preferences and endogenous corporate investment decisions. We find that firms’ investment decisions largely undo the effects of shifts in preferences on stock prices and risk premia. Only when most firms have already switched to a green technology do further preference changes have stronger effects on stock prices. Stochastic social preferences delay the move to a greener economy, especially when preference shocks correlate positively with aggregate cash flows. Risk aversion initially helps the transition, but later slows it down. Correlations between stock returns of firms in brown and green sectors increase (decrease) following an increase (decrease) in green investors’ social preferences. Small changes in social preferences can have large supply effects even when they only have negligible effects on the cost of capital wedge between green and brown firms. [download] 

 

Dangl, T., Halling, M., Yu, J., Zechner, J., Social Preferences and Corporate Investment, May 2023 (R&R at the Journal of Financial Economics).

Abstract: This paper presents different social preferences and their impact on investors’ and firms’ decisions within a unified framework. We categorize preferences into three types: deontological, non-consequentialist, and consequentialist. When investors are large, all three preferences influence corporate investment. However, when investors are competitive, consequentialist preferences may become irrelevant for corporate investment, unlike the other two preference types. For these two preference types, portfolio divestment has significant effects on the supply of green and brown firms in the economy. We also discuss alternative channels through which social preferences influence decisions and review relevant experimental and empirical evidence. [download] 

 

Froeberg, Emelie, Halling, M, Do Investors Benefit From MiFID II Unbundling?, July 2023 (conditionally accepted at the Journal of Corporate Finance).

Abstract: One prominent aspect of the MiFID II regulation that became effective in Europe in 2018 is the unbundling of research and execution costs. We exploit the early adoption of an unbundling rule in Sweden already in 2016 to provide evidence on the implications for fund investors. Using a difference-in-difference framework and mostly hand-collected data on bundled and unbundled commissions, we find no economically meaningful effect of unbundling on commissions. When we split the sample into more active and less active funds, using the Active Share measure, we find that fund costs of more active funds increased in relative terms. Finally, we fail to identify improved fund performance or any information gains for investors’ fund selection process from the increased transparency of observing execution and research costs separately. Overall, we are skeptical that investors benefited from the unbundling of commissions. [download] 


Halling, M., Yu, J., Zechner, J., The Dynamics of Corporate Debt Structure, May 2022.

Abstract: This paper shows that the average U.S. listed firm increases leverage and implements a more diversified debt structure during recessions by increasing the share of private debt. In the cross-section, borrowing strategies diverge: approximately 40% of firms decrease leverage and increase debt concentration by reducing the proportion of public debt, while the remaining 60% increase leverage and decrease debt concentration by augmenting public debt with private debt. Characteristics of these two samples of firms differ sharply. A model of corporate investment and financing choices, where private debt is more expensive but offers flexibility to restructure, can rationalize these dynamics. [download] 


Halling, M., Yu, J., Zechner, J., Primary Corporate Bond Markets and Social Responsibility, December 2021.

Abstract: We document a robust, negative relation between corporate environmental and social (ES) performance and corporate bond issue spreads, even after controlling for ratings and other firm characteristics. Consistent with our theoretical model, this relation is due to bonds rated BBB or below, with spread-reductions of up to 98 basis points. These effects are predominantly related to product and employee scores. We do not find time trends for the ES-spread relation but document strong supply effects, as the share of issuers with good ES ratings has increased substantially. Finally, we provide evidence for a negative ES-credit-risk link. [download]  

Contact Information:

Chair in Sustainable Finance and Professor in Finance

Department of Finance

Campus Kirchberg, Université du Luxembourg

6, rue Richard Coudenhove-Kalergi

L-1359 Luxembourg

Email: michael.halling@uni.lu