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Debt Analysts’ Views of Debt-Equity Conflicts of Interest

The Accounting Review, Forthcoming

Chicago Booth Research Paper No. 10-13

54 Pages Posted: 15 Mar 2010 Last revised: 30 Sep 2013

Gus De Franco

Tulane University - A.B. Freeman School of Business

Florin P. Vasvari

London Business School

Dushyantkumar Vyas

University of Toronto - Rotman School of Management; University of Toronto at Mississauga

Regina Wittenberg Moerman

University of Southern California

Date Written: August 5, 2013

Abstract

We investigate how the tone of sell-side debt analysts’ discussions about debt-equity conflict events affects the informativeness of debt analysts’ reports in debt markets. Conflict events such as mergers and acquisitions, debt issuance, share repurchases, or dividend payments potentially generate asset substitution or wealth expropriation by equity holders. We document that debt analysts routinely discuss these conflict events in their reports. More importantly, discussions about conflict events that we code as negative are associated with increases in credit spreads and bond trading volume. Consistent with the informational value of debt analysts’ discussions in secondary debt markets, we find that negatively coded conflict discussions predict higher bond offering yields in the primary bond market. In additional analyses, we measure the tone of debt analysts’ discussions based on their disagreement with the tone of equity analysts’ discussions and find that the informativeness of debt analysts’ reports is higher when our coding indicates that conflict events are viewed negatively by debt analysts but positively by equity analysts.

Keywords: debt analysts, equity analysts, debt-equity conflict events, bond volume, bond yield, CDS spreads

JEL Classification: G12, G14, G32, M49

Suggested Citation

De Franco, Gus and Vasvari, Florin P. and Vyas, Dushyantkumar and Wittenberg Moerman, Regina, Debt Analysts’ Views of Debt-Equity Conflicts of Interest (August 5, 2013). The Accounting Review, Forthcoming; Chicago Booth Research Paper No. 10-13. Available at SSRN: https://ssrn.com/abstract=1570082 or http://dx.doi.org/10.2139/ssrn.1570082

Gus De Franco (Contact Author)

Tulane University - A.B. Freeman School of Business ( email )

7 McAlister Drive
New Orleans, LA 70118
United States

Florin P. Vasvari

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

Dushyantkumar Vyas

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

University of Toronto at Mississauga ( email )

3359 Mississauga Rd N.
Mississauga, Ontario L5L 1C6
Canada

Regina Wittenberg Moerman

University of Southern California ( email )

Los Angeles, CA 90089
United States

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