Note: all working papers can be downloaded from SSRN.
Halling, M., Yu, J., Zechner, J., Bond and Equity Issuance Activity during COVID-19, May 2020 (short paper).
Abstract: We find that bond issues increased substantially since the onset of the Covid-19 crisis in week 12 (March 16-20). This is the case for bonds rated A or higher, but also for bonds rated BBB or lower, although to a lesser extent. We find that the earliest issuers, issuing in weeks 12 and 13, have mostly ratings A or better, have substantial experience from previous bond issues, and are larger. Over the subsequent crisis weeks, the average issue rating deteriorates, issuers are less experienced and they are smaller. This may be partly due to Fed programs which were announced in week 13, possibly enabling a broader segment of firms to access the bond market. Compared to their previous issues, firms choose longer maturities during the crisis. Determinants of corporate bond spreads change substantially during Covid-19. Before, asset tangibility has a highly significant negative effect on spreads, but this is not the case in the crisis. Also, in contrast to normal periods, being a dividend payer has a significant spread-increasing effect during the crisis. Finally, experience from past bond issues significantly reduces credit spreads during the crisis, but not in normal periods. We also provide descriptive statistics for equity issuance activities during the Covid-19 crisis. Here a very different picture emerges. Issuance activity slowed considerably during the crisis, both in terms of numbers and capital raised.
Giordani, P., Halling, M., Valuation Ratios and Shape Predictability in the Distribution of Stock Returns, December 2019.
Abstract: While a large literature on return predictability has shown a link between valuation levels and expected rates of aggregate returns in-sample, we document a link between valuation levels and the shape of the distribution of cumulative (for example, over 12 and 24 months) total returns. Return distributions become more asymmetric and negatively skewed when valuation levels are high. In contrast, they are roughly symmetric when valuation levels are low. These results turn out to be very robust to alternative (a) measures of valuation levels, (b) model specifications and (c) equity markets (international and industry-level). Importantly, these findings shed light on how equity prices regress back to their means conditional on valuation levels, have important practical implications for risk measurement and asset management, and refine the well-known finding of negative skewness in aggregate returns. The model with conditional skewness also outperforms benchmark models assuming a symmetric or constant-skewness distribution in an out-of-sample setup. Our empirical results support theoretical asset pricing models that have asymmetric responses to shocks, such as stochastic bubbles, liquidity spirals or models with time-varying risk aversion.
Halling, M., Yu, J., Zechner, J., The Dynamics of Corporate Debt Structure, December 2019.
Abstract: We find that US public firms spread out their debt more across different sources in recession quarters, making measures of debt concentration move pro-cyclically. There is substantial cross-sectional variation in these dynamics. Firms with less leverage and higher debt concentration further decrease leverage and increase debt concentration in recessions. The opposite is true for firms with higher leverage and lower debt concentration. The latter (former) group consists of firms that are larger (smaller), less risky (riskier), have fewer (more) growth options and lower (higher) cash levels. While the fraction of total assets funded by bank debt increases in the recession by approximately 18% of its average non-recession level, the equivalent measure for market debt drops by approximately 7%. Bank debt, in particular, term loans, appears to become more attractive during recession quarters, especially for borrowers characterized by high profitability while firm size, in contrast, has a positive effect on the use of market debt in recessions. A cluster analysis shows that a substantial fraction of firms changes its debt policy over the business cycle. For example, 12% of the firms that exclusively use bond-financing pre-recession switch to bank-financing during recessions.
Cooper, M., Halling, M.,Yang,W., The Persistence of Fee Dispersion among Mutual Funds, January 2020 (conditionally accepted at the Review of Finance).
Abstract: Previous work shows large differences in fees for S&P 500 index funds and other funds, and suggests that investors suffer wealth losses investing in high-fee funds when similar low-fee funds are available. In contrast, the neoclassical model of mutual funds (Berk and van Binsbergen, 2015) argues that percentage fees are irrelevant, as fund size will adjust in equilibrium such that net alphas are equal to zero. We show that fees matter from an investor perspective. We document (a) a strong negative association between net-of-fee fund performance and fees in a sample of all US and international equity funds, (b) economically large, robust, persistent, and pervasive fee dispersion in the mutual fund industry, and (c) important economic effects for investors. During the sample period, the mutual fund industry has generated a total value lost (i.e., a negative net value added) of 125 billion USD, coming predominantly from high-fee funds.
Drobetz, W., Halling, M., Schroeder, H., Corporate Life-Cycle Dynamics of Cash Holdings, September 2019.
Abstract: This paper shows that firms’ cash policies are markedly interacted with their corporate life-cycle. While firms in early stages and post-maturity stages hold large amounts of cash, cash ratios decrease when firms move towards maturity. Much of this variation in cash holdings is attributable to a changing demand function for cash over the different life-cycle stages. Trade-off and pecking order motives are of different importance for cash policies dependent on a firm’s life-cycle stage. An additional dollar in cash is highly valuable for introduction and growth firms, while a dollar in cash adds, on average, less than a dollar in market value for firms in later life-cycle stages, most likely due to increasing agency problems. Finally, the secular trend in cash holdings seems strongly attributable to increases in cash in the introduction and the decline stage.