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st: Weird Results

From   Fardad Zand <>
Subject   st: Weird Results
Date   Mon, 10 Aug 2009 18:08:44 +0200

Dear Listers,

I'm encountering an odd issue, which you might be able to explain/resolve.

I'm running xtlogit. My dependent variable is the log of odds of the
firm experiencing increase in its turnover. The main variable of
interest on the right hand side is a dummy, indicating if the firm
uses ERP (a specific type of IT system). I have a set of control
variables, including number of employees to control for size and
economy-of-scale effects. When I add the number of employees, I get
insignificant result for that but significant result for ERP.
Alternatively, for a better interpretations, when I add
log(employees), this variables turns to significant but the ERP
variable becomes insignificant. To further look for the problem, I
realize that corr(erp, employees) = 0.11 while corr(erp, log(emp)) =
0.34. This means that ERP has a much stronger correlation with
log(emp) then with emp, as log is a non-linear transformation.
Therefore, in the specification with log(emp) part of the effect of
ERP is absorbed by this variable and thus ERP turns insignificant. For
your further info, my sample size is in a order of 20000 observations.

Now, I'm puzzled with the real econometric explanation of this issue,
ways to resolve it, suggestions to improve it or advice on what
specification shall be rigorously chosen.

Thank you so much for your support.

All the bests,
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