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From |
Austin Nichols <austinnichols@gmail.com> |

To |
statalist@hsphsun2.harvard.edu |

Subject |
Re: st: interaction dummy or separate regression |

Date |
Wed, 28 Sep 2011 13:11:13 -0400 |

Khieu, Hinh <Hdkhieu@usi.edu> : You are not going to get unbiased estimates of any of those coefs, if that's what you mean. You are not allowed to select on Y, nor include a transformation of it as a regressor, and I strongly recommend you explore what you are estimating using a simulation on generated data where you know the true effects (a1, a2, etc.). You are allowed to select on an exogenous X variable, but not on "abnormal" Y. On Wed, Sep 28, 2011 at 1:00 PM, Khieu, Hinh <Hdkhieu@usi.edu> wrote: > Dear statalist members, > > > > I have the following model and I am not sure if there is an econometric issue with it. I would appreciate any amount of help. Change in Y = a1*growth opportunities + a2*profit + a3*debt + a4*equity + a5*dummy (=1 if change in Y is abnormally high, zero otherwise) + a6 * debt * dummy + a7 * equity * dummy, where abnormally high is defined to be whenever change in Y is greater than 2 times the industry average of Y over the last 3 years (t, t-1, and t-2). > > > > I run fixed effects regression with firm and year dummies on the above model for 2 groups of firms: large firms versus small firms. My question is: is there any mechanical or econometric problem with using the dummy for abnormal Y and its interaction with debt and equity? I know I can split the sample into abnormal Y and normal Y and run two separate regressions. But I want to know specifically if the model above is problematic from an econometric perspective. What if I drop the dummy and keep only the interactions? * * 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: interaction dummy or separate regression***From:*"Khieu, Hinh" <Hdkhieu@usi.edu>

**References**:**st: interaction dummy or separate regression***From:*"Khieu, Hinh" <Hdkhieu@usi.edu>

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