Debt Analysts' Views of Debt-Equity Conflicts of Interest

eaction tests, using Alternative Measure #1, we also find that when daily stock returns are
positive, the coefficient on the interaction variable Conflict Discuss Neg and Equity Return is
positive and statistically significant, which is consistent with a wealth transfer from debt to
equity holders when analysts provide negative discussions of conflict events. The results hold but
are statistically weaker (significant at the 10% level, one-sided test) if we use Alternative
Measure #2. For the bond trading volume analysis, using the alternative conflict discussion
measures, the coefficients on Conflict Discuss Neg are similar in both statistical and economic
significance to those reported in Table 7. These results support our prediction that debt investors
find the reports of debt analysts to be more informative if they contain negative discussions of
conflict events. Finally, when debt analysts view conflict events negatively while equity analysts
are more positive about them, the offering bond yields are significantly higher. These findings
confirm our conjecture that debt analysts’ discussions of conflict events are also informative with
respect to the initial pricing of bond securities in the primary market. Overall, we find that our
results are robust to these two alternative measures of conflict discussion based on the
disagreement in tone of the conflict event discussions in debt and equity analysts’ reports.
5. Conclusion
The role of information intermediaries such as equity analysts, rating agencies and the
press in shaping firms’ information environments has long been of interest to researchers in
accounting and finance. In this paper, we add to prior literature by examining whether the tone of
sell-side debt analysts’ discussions of conflict events reflects new information generated by
analysts, which expands the information set available to debt market investors.
Using a unique hand-collected dataset of sell-side debt analysts’ reports on U.S. firms, we
find that debt analysts routinely discuss events that are likely to generate debt-equity conflicts in
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