xtreg - Fixed & Random Effect Regression

[Marius Mai]

Hi all,

I am having trouble setting up the correct regression model using the -xtreg- command, each regressing leverage on profitability and size.

But first, here is a sample of my dataset:

* Example generated by -dataex-. To install: ssc install dataex
clear
input str130 Bank_Name double year str38 country float(Leverage Profitability Size)
"1ST BANK"                               2004 "UNITED STATES OF AMERICA" .9303279  .05327869  19.31268
"1ST BANK"                               2005 "UNITED STATES OF AMERICA" .8618421  .04276316  19.53254
"1ST BANK"                               2006 "UNITED STATES OF AMERICA" .8676923  .05538461 19.599337
"1ST BANK"                               2007 "UNITED STATES OF AMERICA" .8530702  .05701754 19.938004
"1ST BANK"                               2008 "UNITED STATES OF AMERICA" .8458244  .06423983  19.96184
"1ST BANK"                               2009 "UNITED STATES OF AMERICA"  .843318  .04147466  20.29402
"1ST BANK"                               2010 "UNITED STATES OF AMERICA" .8505586  .04329609  20.38919
"1ST BANK"                               2011 "UNITED STATES OF AMERICA" .8804071  .01908397  20.48247
"1St Century Bank, National Association" 2006 "UNITED STATES OF AMERICA" .7313433  .04477612 19.118816
"1St Century Bank, National Association" 2007 "UNITED STATES OF AMERICA" .7366071  .04910714 19.227156
"1St Century Bank, National Association" 2008 "UNITED STATES OF AMERICA" .7953668 .034749035  19.37234
"1St Century Bank, National Association" 2009 "UNITED STATES OF AMERICA" .8424909 .025641026  19.42498
"1St Century Bank, National Association" 2010 "UNITED STATES OF AMERICA" .8668831 .025974026  19.54561
"1St Century Bank, National Association" 2011 "UNITED STATES OF AMERICA"  .891358  .02962963 19.819397
"1St Century Bank, National Association" 2012 "UNITED STATES OF AMERICA" .9038076 .034068137 20.028116
"1St Century Bank, National Association" 2013 "UNITED STATES OF AMERICA"  .901487  .03717472  20.10337
"1St Century Bank, National Association" 2014 "UNITED STATES OF AMERICA" .9008547  .03760684  20.18712
"1St Security Bank Of Washington"        2004 "UNITED STATES OF AMERICA" .8812261  .06130268  19.38003
"1St Security Bank Of Washington"        2005 "UNITED STATES OF AMERICA" .8666667   .0627451 19.356773
"1St Security Bank Of Washington"        2006 "UNITED STATES OF AMERICA" .8677043  .05447471 19.364586
"1St Security Bank Of Washington"        2007 "UNITED STATES OF AMERICA" .8754717  .03018868  19.39524
"1St Security Bank Of Washington"        2008 "UNITED STATES OF AMERICA" .8832685 .035019454 19.364586
"1St Security Bank Of Washington"        2009 "UNITED STATES OF AMERICA" .9184397 .024822695  19.45742
"1St Security Bank Of Washington"        2010 "UNITED STATES OF AMERICA" .9143836  .05479452 19.492264
"1St Security Bank Of Washington"        2011 "UNITED STATES OF AMERICA" .9049296  .05633803 19.464485
"1St Security Bank Of Washington"        2012 "UNITED STATES OF AMERICA" .8662953  .05849582 19.698833
"1St Security Bank Of Washington"        2013 "UNITED STATES OF AMERICA" .8806683  .05966587  19.85338
"1St Security Bank Of Washington"        2014 "UNITED STATES OF AMERICA" .8882235  .05788423 20.032116
"1St State Bank"                         2007 "UNITED STATES OF AMERICA"     .912       .016 18.643824
"1St State Bank"                         2008 "UNITED STATES OF AMERICA" .9130435  .02898551 18.742764
"1St State Bank"                         2009 "UNITED STATES OF AMERICA" .9090909 .032467533 18.852463
"1St State Bank"                         2010 "UNITED STATES OF AMERICA"       .9      .0375 18.890684
"1St State Bank"                         2011 "UNITED STATES OF AMERICA" .9022989  .04022989 18.974566
"1St State Bank"                         2012 "UNITED STATES OF AMERICA" .8944445        .05 19.008467
"1St State Bank"                         2013 "UNITED STATES OF AMERICA" .8994709  .04761905 19.057257
"1St State Bank"                         2014 "UNITED STATES OF AMERICA"  .912037  .04166667  19.19079
"1St Trust Bank, Inc."                   2009 "UNITED STATES OF AMERICA" .9082569 .036697246 18.506859
"1St Trust Bank, Inc."                   2010 "UNITED STATES OF AMERICA" .9193549 .032258064 18.635792
"1St Trust Bank, Inc."                   2011 "UNITED STATES OF AMERICA" .9124088  .03649635  18.73549
"1St Trust Bank, Inc."                   2012 "UNITED STATES OF AMERICA" .9150327  .03267974  18.84595
"1St Trust Bank, Inc."                   2013 "UNITED STATES OF AMERICA" .9166667  .03846154 18.865366
"1St Trust Bank, Inc."                   2014 "UNITED STATES OF AMERICA" .9230769  .04102564  19.08851
"1st Advantage Bank"                     2008 "UNITED STATES OF AMERICA" .9126984 .023809524 18.651793
"1st Advantage Bank"                     2009 "UNITED STATES OF AMERICA" .9122807  .00877193 18.551708
"1st Bank"                               2007 "UNITED STATES OF AMERICA" .9019608  .05882353 18.440483
"1st Bank"                               2008 "UNITED STATES OF AMERICA" .9009901  .05940594 18.430632
"1st Bank & Trust"                       2007 "UNITED STATES OF AMERICA" .9038461  .07692308 18.459902
"1st Bank & Trust"                       2008 "UNITED STATES OF AMERICA" .8888889 .074074075 18.497643
"1st Bank & Trust"                       2009 "UNITED STATES OF AMERICA"  .880734  .06422018 18.506859
"1st Bank & Trust"                       2010 "UNITED STATES OF AMERICA" .9074074 .074074075 18.497643
"1st Bank & Trust"                       2011 "UNITED STATES OF AMERICA" .8909091  .07272727 18.515991
"1st Bank & Trust"                       2012 "UNITED STATES OF AMERICA" .8907563 .067226894 18.594633
"1st Bank & Trust"                       2013 "UNITED STATES OF AMERICA" .8823529 .067226894 18.594633
"1st Bank & Trust"                       2014 "UNITED STATES OF AMERICA" .8828125      .0625 18.667542
"1st Bank Oklahoma"                      2004 "UNITED STATES OF AMERICA" .9160839  .04895105 18.778355
"1st Bank Oklahoma"                      2005 "UNITED STATES OF AMERICA" .9256757   .0472973 18.812723
"1st Bank Oklahoma"                      2006 "UNITED STATES OF AMERICA" .9303797   .0443038 18.878105
"1st Bank Oklahoma"                      2007 "UNITED STATES OF AMERICA" .9186047  .04069768 18.963005
"1st Bank Oklahoma"                      2008 "UNITED STATES OF AMERICA" .9174757  .04368932 19.143387
"1st Bank Oklahoma"                      2009 "UNITED STATES OF AMERICA" .9049587  .04958678  19.30445
"1st Bank Oklahoma"                      2010 "UNITED STATES OF AMERICA" .9056604   .0490566  19.39524
"1st Bank Oklahoma"                      2011 "UNITED STATES OF AMERICA" .8994709  .02116402 19.057257
"1st Bank Yuma"                          2005 "UNITED STATES OF AMERICA" .9189189  .04504504 18.525042
"1st Bank Yuma"                          2006 "UNITED STATES OF AMERICA" .9083334        .05 18.603003
"1st Bank Yuma"                          2007 "UNITED STATES OF AMERICA" .8965517  .05172414 18.569101
"1st Bank Yuma"                          2008 "UNITED STATES OF AMERICA" .9083334  .05833333 18.603003
"1st Bank Yuma"                          2009 "UNITED STATES OF AMERICA" .8870968  .04032258 18.635792
"1st Bank Yuma"                          2010 "UNITED STATES OF AMERICA" .8880597  .05223881  18.71335
"1st Bank Yuma"                          2011 "UNITED STATES OF AMERICA" .8680556      .0625 18.785324
"1st Bank Yuma"                          2012 "UNITED STATES OF AMERICA"  .893401  .05076142 19.098715
"1st Bank Yuma"                          2013 "UNITED STATES OF AMERICA" .8944724  .05527638 19.108816
"1st Bank Yuma"                          2014 "UNITED STATES OF AMERICA" .8925233  .05140187 19.181486
"1st Bank of Sea Isle City"              2004 "UNITED STATES OF AMERICA" .9289618  .04371585 19.024996
"1st Bank of Sea Isle City"              2005 "UNITED STATES OF AMERICA" .9308756  .04147466  19.19541
"1st Bank of Sea Isle City"              2006 "UNITED STATES OF AMERICA" .9175258  .04123711  19.08337
"1st Bank of Sea Isle City"              2007 "UNITED STATES OF AMERICA" .9125683 .027322404 19.024996
"1st Bank of Sea Isle City"              2008 "UNITED STATES OF AMERICA"     .915        .03  19.11383
"1st Bank of Sea Isle City"              2009 "UNITED STATES OF AMERICA" .9297521  .02892562  19.30445
"1st Bank of Sea Isle City"              2010 "UNITED STATES OF AMERICA" .9237288 .033898305  19.27934
"1st Bank of Sea Isle City"              2011 "UNITED STATES OF AMERICA" .9170125  .04149378  19.30031
"1st Bank of Sea Isle City"              2012 "UNITED STATES OF AMERICA" .9121339   .0460251 19.291975
"1st Bank of Sea Isle City"              2013 "UNITED STATES OF AMERICA" .9059829  .04273504  19.27083
"1st Bank of Sea Isle City"              2014 "UNITED STATES OF AMERICA" .9012876  .03862661  19.26655
"1st Bank, National Association"         2006 "UNITED STATES OF AMERICA" .9069768  .04069768 18.963005
"1st Bank, National Association"         2007 "UNITED STATES OF AMERICA" .9170732 .034146342  19.13852
"1st Bank, National Association"         2008 "UNITED STATES OF AMERICA" .9086539  .04807692  19.15305
"1st Bank, National Association"         2009 "UNITED STATES OF AMERICA" .9195804  .04545455   19.4715
"1st Bank, National Association"         2010 "UNITED STATES OF AMERICA" .8983607  .05245902  19.53582
"1st Bank, National Association"         2011 "UNITED STATES OF AMERICA" .9067524  .04501608 19.555304
"1st Bank, National Association"         2012 "UNITED STATES OF AMERICA" .8956229  .04377104 19.509243
"1st Bank, National Association"         2013 "UNITED STATES OF AMERICA" .8980263  .03947368  19.53254
"1st Bank, National Association"         2014 "UNITED STATES OF AMERICA" .8796296  .01234568 19.596254
"1st Capital Bank"                       2008 "UNITED STATES OF AMERICA" .7862595 .015267176 18.690708
"1st Capital Bank"                       2009 "UNITED STATES OF AMERICA"  .859375 .020833334 19.073006
"1st Capital Bank"                       2010 "UNITED STATES OF AMERICA"  .876652  .03964758  19.24046
"1st Capital Bank"                       2011 "UNITED STATES OF AMERICA" .8888889  .04166667  19.47847
"1st Capital Bank"                       2012 "UNITED STATES OF AMERICA" .8966565  .04559271  19.61157
"1st Capital Bank"                       2013 "UNITED STATES OF AMERICA" .9018088  .03875969 19.773935
"1st Capital Bank"                       2014 "UNITED STATES OF AMERICA"  .911828 .034408603  19.95755
"1st Centennial Bank"                    2004 "UNITED STATES OF AMERICA" .8904495   .0758427  19.69044
end

Now, I am running different regression models using -xtreg- / -xtreg,fe-.
I declared the dataset as panel data using -xtset-,

sort identifier_bank year
xtset, clear
xtset identifier_bank year 

xtreg Leverage Profitability Size, re vce(cluster identifier_bank)  /*no fixed effects / random effects*/
xtreg Leverage Profitability_lag Size_lag Collateral_lag i.identifier_country, fe vce(cluster identifier_bank) /* Country fixed effects only*/
xtreg Leverage Profitability Size i.year, fe vce(cluster identifier_bank) /* Time fixed effects only */
xtreg Leverage Profitability Size i.identifier_country i.year, fe vce(cluster identifier_bank) /* country & time fixed effects*/

However, I am not quite sure whether the code is correct, especially when I have to add i.controls even though I already declared the dataset as a panel. Note, that each regression accounts for different fixed effects.

Thank you!

Marius

****
I am currently using stata 13 on a mac

[Carlo Lazzaro]

Marius:
as usual, there's no such thing as "the best" regression model.
You reported the codes of very different regression models, but the only relevant thing is to give a fair and true view of the data generating process: the literature in your research field can help you out in this respect.
That said, technically speaking, in choosing between -fe- or -re- specification you should consider the outcome of -hausman- (if you have default standard errors) or rely on the results of the user-written programme -xtoverid- (type -xtoverid- from within Stata to insatall it) if you go robust/cluster..