Dear All

I have not used propensity score matching before. I read lots of materials but I am still confused. I will try to summarize my problem here.

I have a sample that includes firms which are likely to manipulate their earnings (manipulate=1) and other firms that are not suspected for manipulation (manipulate=0). The firms with manipulate=1 are much fewer than those with manipulate=1.

I want to do the following:

Is my execution for the first step correct?

I am not sure if one can use a conditional statement for the second step and I am also not sure if _nn is the correct variable here?

Note that the variables used in the logit to create the propensity scores are not the same as the ones in the OLS regression in the second step. My aim is first to create a matched sample based on firm characteristics in step 1 and then examine the relation between stock prices and financial variables for each sample (those with 1 manipulation and their matched sample of 0 manipulation)

I appreciate your help. psmatch2 is a well-known user written programme.

Thanks

I have not used propensity score matching before. I read lots of materials but I am still confused. I will try to summarize my problem here.

I have a sample that includes firms which are likely to manipulate their earnings (manipulate=1) and other firms that are not suspected for manipulation (manipulate=0). The firms with manipulate=1 are much fewer than those with manipulate=1.

I want to do the following:

- Determine a propensity score matched sample from the zero manipulation firm (with no replacement).
- Run OLS regressions to determine the relation between stock prices and other financial ratios for the treated sample (manipulate=1) and its propensity score matched sample of manipulate=0.

Code:

**I did the following for step 1: Set seed 1234 // to ensure replication Gen sort_id= uniform() Sort sort_id psmatch2 manipulate x1 x2 x3 x4 x5, logit noreplace common tab _weight _treated **As for step 2: reg stock_price book earnings if _nn=1 reg stock_price book earnings if _nn==0

Is my execution for the first step correct?

I am not sure if one can use a conditional statement for the second step and I am also not sure if _nn is the correct variable here?

Note that the variables used in the logit to create the propensity scores are not the same as the ones in the OLS regression in the second step. My aim is first to create a matched sample based on firm characteristics in step 1 and then examine the relation between stock prices and financial variables for each sample (those with 1 manipulation and their matched sample of 0 manipulation)

I appreciate your help. psmatch2 is a well-known user written programme.

Thanks

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