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From |
Maarten Buis <maartenlbuis@gmail.com> |

To |
statalist@hsphsun2.harvard.edu |

Subject |
Re: st: Problems with Fixed Effects Regression |

Date |
Mon, 30 May 2011 12:32:52 +0200 |

On Mon, May 30, 2011 at 11:45 AM, Abubakr Saeed wrote: > I'm performing a panel data analysis (400 firms, 12 years, and 6 > industries). I got two questions regarding my analysis: > My LM test supports for random individual effects. After estimating > the Hausman test for deciding between fixed or random effect > regression, result was in favor of the fixed effect regression. I am > using Industry dummies which are constant over time. While running FE > my all industry dummies were dropped because of collinearity. What I > do? Should I just neglect industry dummies or choose random effect? When you estimate a fixed effects model you are controlling for everything that is constant within a firm. This is why Stata is dropping every variable that is constant within firms, these cannot explain anything after controlling for the fixed effects. If industry is just a control variable and you are not substantively interested in it, than you can just use a fixed effects model and leave industry out. You are not ignoring anything, as the fixed effects are already controlling for all firm-constant variables, including industry. The same is true for all other firm-constant variables, like your other variable whether or not the firm was listed. Things will obviously get more complicated when you are substantively interested in these effects. Hope this helps, Maarten -------------------------- Maarten L. Buis Institut fuer Soziologie Universitaet Tuebingen Wilhelmstrasse 36 72074 Tuebingen Germany http://www.maartenbuis.nl -------------------------- * * For searches and help try: * http://www.stata.com/help.cgi?search * http://www.stata.com/support/statalist/faq * http://www.ats.ucla.edu/stat/stata/

**Follow-Ups**:**Re: st: Problems with Fixed Effects Regression***From:*Abubakr Saeed <abubakr.sd@gmail.com>

**References**:**st: Problems with Fixed Effects Regression***From:*Abubakr Saeed <abubakr.sd@gmail.com>

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