Debt Analysts' Views of Debt-Equity Conflicts of Interest

Variable Definition
Debt Recommendation
Downgrade
APPENDIX 1 (Continued)
= Indicator variable that equals one in the five-day period centered on the date of a debt
analyst’s recommendation downgrade, zero otherwise.
Earnings = Indicator variable that equals one in the five-day period centered on the date of a firm’s
earnings announcement, zero otherwise. Data are from Compustat.
Earnings Neg = Indicator variable that equals one in the five-day period centered on the date of a firm’s
earnings announcement if earnings before extraordinary items are negative, zero
otherwise.
Equity Buy
Recommendation
= Indicator variable that equals one in the five-day period centered on the date of an equity
analyst’s buy recommendation, zero otherwise.
Equity Recommendation = Ordered variable that equals one if the equity analyst’s recommendation is a sell, two if
the recommendation is a hold, and three if it is a buy.
Equity Recommendation
Prior 6M
= The average of Equity Recommendation for a firm during the 180-day window prior to
the bond issuance date.
Equity Report = Indicator variable that equals one in the five-day period centered on the date of an equity
analyst’s report, zero otherwise.
Equity Return = Equity return during a given trading day.
Equity Sell
Recommendation
= Indicator variable that equals one in the five-day period centered on the date of an equity
analyst’s sell recommendation, zero otherwise.
Equity Volume = Dollar volume of shares traded on a given day, scaled by the number of shares
outstanding.
Fcst Revision = Average of one-year-ahead earnings per share forecast revision by equity analysts from
45 days prior to the debt analyst report date until 2 days after it. Each forecast revision is
scaled by the cross-sectional standard deviation of the forecast revisions in the event
window.
Fed Change = Indicator variable that equals one in the five-day period centered on the date of the
federal funds rate changes, zero otherwise.
Fed Rate = The prevailing Federal Funds rate on the day prior to the bond issuance date.
Firm Size = Logarithm of total assets, measured at the end of the calendar quarter preceding the
quarter in which the bond was issued.
Highly Traded = Indicator variable equal to one if the firm’s bonds are traded on average more than the
median bond in the sample, zero otherwise.
Interest Coverage = Ratio of interest expense to income before interest and taxes, measured at the end of the
quarter preceding the quarter in which the bond was issued.
Leverage = The ratio of total liabilities to total assets, measured at the end of the quarter preceding
the quarter in which the bond was issued.
Number of Covenants = Total number of covenants that are present in the bond contract.
Number of Covenants
(Predicted)
= Predicted total number of covenants that are present in the bond contract based on the
year of bond issuance as a first stage instrument.
Private = Indicator variable that takes the value of one if, at the time of the bond’s issuance, a firm
has syndicated loans outstanding (as indicated by the Dealscan database), zero
otherwise.
(Continued)
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