Debt Analysts' Views of Debt-Equity Conflicts of Interest

ecommendations. In terms of economic significance, when the Conflict Discuss Neg variable
changes from being positive or neutral to being negative, the probability of a sell
recommendation increases by about 6.1%. For our control variables, we find that longer reports
are associated with more positive recommendations. For the bonds of firms on a rating agency’s
positive watch list, analysts are more likely to issue positive recommendations, consistent with
an expected improvement in a firm’s credit quality. An untabulated χ 2 -statistic indicates that the
rating fixed effects are jointly statistically significant.
In the second column, we estimate Equation 1 but use recommendation revisions (ΔDebt
Recommendation) as the dependent variable instead of recommendation levels. This sample is
limited to observations in which a recommendation change or the previous recommendation
level is provided in the report. In this specification, the coefficient on Conflict Discuss Neg is
negative and statistically significant, as expected. Hence, when debt analysts view conflict events
as negative, they are less likely to revise their recommendations upwards. In terms of control
variables, the positive coefficient on the variable On Watch Pos indicates that debt analysts are
more likely to upgrade when bonds are placed on a rating agency’s positive watch list.
In the third column, using the same set of explanatory variables, we predict the
disagreement between debt and equity analysts’ recommendations. The dependent variable is the
debt analyst’s recommendation less the most recent equity analyst’s recommendation issued for
the same firm in the 21-trading-day window before the debt analyst report. Of the 7,035
observations used in this test, 4,107 represent a recommendation disagreement between debt and
equity analysts. We find that the coefficient on Conflict Discuss Neg is negative and statistically
significant, indicating that when debts analysts have negative discussions about conflict events,
they are more likely to issue more negative recommendations than are equity analysts. This
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