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st: Does your academic discipline use logit regressions with interaction terms?


From   [email protected]
To   [email protected]
Subject   st: Does your academic discipline use logit regressions with interaction terms?
Date   Fri, 16 Aug 2002 15:11:57 -0400

Hi, does your academic discipline typically use logit (or probit) 
regressions with interaction terms?  If so, then you may be able to help 
me.

I am an academic in finance.  There is a branch of research on 
management turnover in the finance literature that analyzes the 
sensitivity of turnover to performance, i.e. how badly does a firm need 
to perform before the CEO is asked to leave (a particularly timely 
question these days!)  Often, the emphasis is on comparing two 
"types" of firms to see when turnover is most sensitive to performance.  
For example, firms might be sorted into two groups based on 
characteristics of the board of directors, the people responsible for 
supervising the CEO.

In general, participants in this literature estimate logit regressions 
where turnover=f(performance, type, type*performance, controls).  In 
general, researchers focus on the estimated coefficient for the 
interaction term of type*performance.  Unfortunately, the estimated 
coefficient for the interaction term (and its statistical significance)  
depends not just on the true underlying sensitivity of turnover to 
performance, but on the difference in the average likelihood of 
turnover between the two types of firms. In general terms, this is 
because the estimate coefficient is the log of the odds ratio which 
depends on the underlying level of the odds.

In any event, I have written a short note which uses simulations to 
illustrate this problem.  While it is a subtle point, it is really a very basic 
point.  I would be incredibly surprised if it has not been addressed in 
the literature of a different field.  That is where you can come in:

1) Is that particular form of logit or probit regression typical in your 
field?  If so, can you give me some references?

2) Have you seen this statistical issue addressed in a paper, textbook, 
etc? If so, can you give me some references.


Thanks for any help that you can offer.

Sincerely
 Eric A. Powers
Assistant Professor of Finance
The Moore School of Business
University of South Carolina
Columbia SC, 29208

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