Debt Analysts' Views of Debt-Equity Conflicts of Interest

asymmetric demand for negative information is the main driver of the demand for conflict
discussion, then the market reactions could be higher when credit quality is high, as asymmetric
demand is stronger for firms with higher credit quality (De Franco et al., 2009). In addition, it is
likely that the discussions of conflict events conducted by debt analysts already take into account
firms’ credit riskiness. Hence, when the tone of these discussions is conditional on the firm’s
credit rating, it may not generate differential market reactions. Thus, the cross-sectional variation
of the importance of conflict event discussions across rating categories is ultimately an empirical
question.
3. Data and measurement of debt analysts’ conflict-event discussions
3.1. Collection of debt analysts’ reports
We obtain debt analysts’ reports from First Call Thomson ONE Analytics. For each
report we manually code the analyst name, brokerage firm, report date, investment
recommendation, and the name of the company covered by the report. The majority of debt
analysts’ recommendations are at the firm level, i.e., they refer to all of the firm’s bonds that are
actively trading in the secondary market. 8 If the broker has not already done so, we standardize
the debt analysts’ recommendations into three categories: buy, hold, or sell. 9 We also collect
current rating information (Moody’s or Standard and Poor’s) from the reports.
We select reports about U.S. corporate firms with bond securities for the years 2002-
2007. The start of this period aligns with the availability of bond trading data from the TRACE
(Trade Reporting and Compliance Engine) database. We exclude reports on Real Estate
8 Debt analysts sometimes provide investment recommendations at the security level (for a particular bond issue),
instead of at the firm level. For our research sample, in almost in all cases when recommendations at the security
level are available for each of the firm’s bonds, these recommendations are identical.
9 We standardize the recommendations to Buy, Neutral, and Sell. While most brokers typically employ these three
recommendation levels, some use a system of five levels (Strong Buy, Buy, Neutral, Sell, Strong Sell). The
standardization to three levels allows us to pool the recommendations together in our empirical tests.
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