Social Control Agents' Effectiveness in Capital Markets: The Role of Analysts' Political Ideology

Scholars have highlighted that social control agents (SCAs) can cause significant economic penalties when targeting a firm in capital markets. However, the effectiveness of such actions by SCAs is not always uniform. In this study, we focus on the micro-foundations of this heterogenous effect by studying the role of a key intermediary in capital markets, namely financial analysts. Our paper explores the effect of SCA actions on analysts' recommendations, highlighting that analysts' theoretical ideology plays an important role in effectuating SCA actions in capital markets. Using analysts' recommendations for U.S. defense firms between 1998 and 2017 and a novel hand-collected database of analysts' political ideology, we find that liberal-leaning analysts are more likely to issue sell recommendations for target firms, particularly when the SCAs' criticism is directed to actions which are distant from the core business of the focal firms.