Debt Analysts' Views of Debt-Equity Conflicts of Interest

TABLE 6
The effect of the tone of debt analysts’ conflict discussions on daily CDS spread changes
This table presents an analysis of daily CDS spread change reactions to the tone of debt analysts’ conflict
discussions, controlling for other events that could affect CDS spread changes. The dependent variable is ΔCDS
Spread. In column (1), the full sample includes observations for all trading days for which we have CDS spread data
available during the six-year period studied for each of the sample firms. For the remaining columns, we limit the
sample to observations that represent positive news for equity holders, as proxied by positive stock returns. We
estimate the OLS model as a panel and cluster the standard errors at the firm level. Coefficient t-statistics are in
brackets. ***, **, and * denote significance at the 1%, 5%, and 10% levels, respectively, using two-tailed tests.
Variables are defined in Appendix 1.
Full
Sample Restricted
to Positive News
Sample for Equity Investors
Pred. (1) (2) (3)
Conflict Discuss Neg + 0.031** -0.026 -0.019
[2.50] [-1.45] [-1.21]
Conflict Discuss Neg × Equity Return + 2.729**
[2.11]
Conflict Discuss Neg: Above A Rating × Equity Return + 1.319***
[3.25]
Conflict Discuss Neg: BBB-A Rating × Equity Return + 1.628***
[3.13]
Conflict Discuss Neg: Below BBB Rating × Equity Return + 3.175**
[2.36]
Equity Return – -1.211*** -1.161***
[-4.98] [-4.84]
Debt Buy Recommendation – 0.001 -0.003 -0.004
[0.14] [-0.37] [-0.43]
Debt Sell Recommendation + 0.004 -0.003 -0.001
[0.53] [-0.24] [-0.08]
Debt Recommendation Upgrade – -0.010 -0.027** -0.024**
[-1.15] [-2.52] [-2.33]
Debt Recommendation Downgrade + 0.018 0.026** 0.025**
[1.40] [2.32] [2.16]
ΔCDS Market Spread + 1.000** 0.878** 0.880**
[2.56] [2.42] [2.41]
Equity Buy Recommendation ? -0.004* 0.002 0.001
[-1.86] [0.88] [0.44]
Equity Sell Recommendation ? 0.003 -0.007 -0.006
[0.36] [-0.44] [-0.39]
Rating Agency Action Neg + 0.050 0.015 0.014
[1.63] [0.67] [0.64]
Earnings Neg + -0.045 0.006 0.009
[-0.81] [0.28] [0.59]
Rating Effects Yes Yes No
No. of obs. 364,595 178,213 178,213
Adjusted R 2 (%) 2.28 2.35 2.29
59