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Re: st: indicator variable and interaction term different signs but both significant
From
Richard Williams <[email protected]>
To
[email protected], [email protected]
Subject
Re: st: indicator variable and interaction term different signs but both significant
Date
Sat, 06 Apr 2013 19:32:37 -0400
The significance of OC_D is not any big deal, or at least need not
be. It is saying that, when MV = 0, the predicted difference between
the two types of managers is statistically significant. At some other
values of MV it may not be statistically significant. Since you say
MV is continuous positive, 0 is, at best, the lowest possible value
for MV, and in practice the lowest value may be much higher than 0.
To give another example, suppose that instead of MV the variable was
weight. At 0 pounds the difference between two groups may be
significant. But nobody weighs 0 pounds so it isn't a useful
comparison. Center weight so that 0 = average weight, and the
comparison becomes more useful, i.e. the coefficient for OC_D would
be the expected different between the two types of managers who were
both of average weight.
If you wanted to, you could compute the predicted difference between
two managers who both weighed a negative millions pounds or a
positive million pounds. The coefficients might be wildly significant
but hardly helpful.
At 06:45 PM 4/6/2013, Nahla Betelmal wrote:
Thanks Anthony for the reply. Actually Overconfidence indicator
variable takes value of 1 for overconfident managers, and value of
zero for rational managers. The market value variable is a continuous
positive variable.
I am not sure that interpreting the indicator variable (OC_D) has
literal interpretation in the interaction model, I am confused due to
the significance ! otherwise I would only have focused on the
interaction term (i.e. overconfident managers manipulate earnings
upwardly when the market value of their firms is high) but I am not
sure if I got it right.
Many thanks, and I am looking for others responses as well
Nahla
On 6 April 2013 23:24, Anthony Fulginiti <[email protected]> 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.
>
>
> 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
OFFICE: (574)631-6668, (574)631-6463
HOME: (574)289-5227
EMAIL: [email protected]
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