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Re: st: indicator variable and interaction term different signs but both significant


From   Richard Williams <richardwilliams.ndu@gmail.com>
To   statalist@hsphsun2.harvard.edu, statalist@hsphsun2.harvard.edu
Subject   Re: st: indicator variable and interaction term different signs but both significant
Date   Sat, 06 Apr 2013 19:17:36 -0400

At 06:24 PM 4/6/2013, Anthony Fulginiti wrote:
Hi Nahla,

I would recommend waiting for others on Statalist to respond to provide confirmation of my interpretation. However, my thoughts are that this is suggesting that your main effect for overconfidence is suggesting that overconfident managers manipulate earnings less than other managers (if that is the reference group) at market value 0. The interaction would then suggest that the effect of the overconfidence variable on earnings manipulation is increasingly greater at higher market values. I look forward to hearing other replies.


To be a little more precise you might say something like "otherwise identical managers when MV = 0" or something like that, but what you say is about right. But again, 0 need not be a meaningful value; we can't tell because we don't know what the observed or possible range of MV is. To me the critical thing seems to be that the effect of MV is about 3 times as large for overconfident managers as it is for regular managers. Given how small the sample is I'd be tempted to drop insignificant variables like size, leverage and litigation unless they are theoretically critical.

Anthony


On Apr 6, 2013, at 2:45 PM, Nahla Betelmal wrote:

> Dear Statalist,
>
> I am having difficulty interpreting the results from OSL regression. I
> am trying to see whether Overconfident managers manipulate earnings in
> a certain context.
>
> The dependent variable earnings_Mgt is continuous  The problem is that
> the indicator variable for overconfidence (OC_D) is negative and
> significant, while the interaction between the indicator variable and
> market_value variable (OC_MV) is positive and significant. What does
> that mean?
> Does it mean that overconfident managers manipulate earnings less than
> others (rational managers), but when the market value is high they
> manipulate earnings more than rational managers do?
>
> Your help is highly appreciated,
>
> many thanks
>
> Nahla Betelmal
>
>
> Linear regression             Number of obs   = 56
> F( 8, 47)     = 3.60
> Prob > F      = 0.0025
> R-squared     = 0.3719
> Root MSE      = .08355
> Robust
> earnings Mgt Coef. Std. Err. t P>t [95% Conf. Interval] > size .0058268 .0092169 0.63 0.530 -.0127153 .0243689 > leverage .0924198 .0724032 1.28 0.208 -.0532367 .2380763 > MV .0046896 .0032752 1.43 0.159 -.0018993 .0112784 > litigation .0310148 .0267527 1.16 0.252 -.0228048 .0848344 > private_D -.0638102 .023056 -2.77 0.008 -.110193 -.0174275 > same_D -.08197 .0273465 -3.00 0.004 -.136984 -.026956 > OC_D -.0730767 .0288269 -2.54 0.015 -.131069 -.0150844 > OC_MV .0105348 .0049493 2.13 0.039 .000578 .0204916 > _cons .0381444 .0615391 0.62 0.538 -.0856564 .1619452
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Richard Williams, Notre Dame Dept of Sociology
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