RE: st: pooled regression vs fixed effects

[Ozgur Ozdemir <ozdemirozgur@hotmail.com>]

thanks Chris,
that was really helpful. It seems,  I need to use the fixed effects model.



kind regards
Ozgur 

----------------------------------------
> From: kit.baum@bc.edu
> To: statalist@hsphsun2.harvard.edu
> Date: Tue, 7 Feb 2012 08:10:47 -0500
> Subject: re:st: pooled regression vs fixed effects
>
> <>
> I am trying to address the multiple directorships association with firm performance however having difficulties to find which method to use. for example, when I do the following test on my panel data which has companies and years as index.
> xi : areg tobin_q market_value logboard_size average_directorships_per_director i.year, robust absorb(industry)
> I got all the independent variables significant however when I use the fixed effect model which seems more convient than the random effects based on the hausman test,
>
> xi : xtreg tobin_q market_value logboard_size average_directorships_per_director i.icb_suprsectr_code i.year, robust fe
>
> I got most of them insignificant. I am having difficulties to understand the reason and any help will be appreciated. I expect that the results should be similar in both cases as I have the same dummies across the year. however, do not have sufficient information about what areg really do ? kind regardsOzgur Ozdemir
>
>
> You don't have the same model. areg is just a convenience command that allows you to partial out the effect of dummies included in absorb(). So your areg model
> is pooled OLS with industry and time dummies. All firms share the same constant term. In the xtreg, you are fitting fixed effects with the within estimator, which gives
> each firm its own constant term. That estimator will have explanatory power i-f-f the movements of firm-level Tobin's Q around the firm mean are correlated with firm-level deviations of regressors around their firm means.
>
> If the F-test at the foot of the xtreg,fe (which may be suppressed if you say 'robust' --try removing that option) is significant, then the areg model is misspecified in terms of unobserved heterogeneity at the firm level.
>
> Kit
>
>
> Kit Baum | Boston College Economics & DIW Berlin | http://ideas.repec.org/e/pba1.html
> An Introduction to Stata Programming | http://www.stata-press.com/books/isp.html
> An Introduction to Modern Econometrics Using Stata | http://www.stata-press.com/books/imeus.html
>
>
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