Stigma and Political Ideology of Financial Analysts

Scholars have examined the magnitude of economic loss that a stigmatized organization suffers by studying the effect of stigma on the firm's stock market valuations. However, the microfoundations of such negative relationship - through financial analysts’ recommendations and the heterogeneity of their response - has not been investigated. This study investigates the effect of stigma on analysts’ sell recommendations by examining the role of analysts’ political ideology in this relationship. Using annual analysts' recommendations for U.S. defense firms between 1998 and 2017 and a novel database of analysts’ political ideology, we find that liberal-leaning analysts are more likely to issue sell recommendations for stigmatized firms, particularly when the stigma is related to social harm and when the President is from the Democratic party.