Panel data with binary and group variables as independent variables

[Niels Olsen]

Hello,

I am new to Stata and Econometrics in general, and I am really struggling to choose the right method.

I want to see if binary and group variables, respectively, can explain a continuous variable.

I have unbalanced panel data (see below), where:

• ID = Company
• ME = Management Error = continuous variable. ME can be optimistic or pessimistic
• ME ABS = Absolute value of ME = continuous variable.
• OPTM = binary variable (1 of ME is optimistic; 0 if ME is pessimistic)
• Year = from 2004 to 2007
• Industry = Group variable
• Item = Group variable ("EBITDA" = 5; "EBITA" = 4; "EBIT" = 3; "EBT" = 2; "Net Profit" = 1)
• Margin = Binary variable (1 if Item is Margin; 0 otherwise)
• CEO = ID for each CEO

Specifically, I am interested in:

1. Can following variables 1) explain if ME is optimistic or pessimistic?; 2) explain the level of Optimism and Pessimism, respectively in ME?; 3) explain the overall level of error (ME ABS)
1.a. "Year"
1.b. "Industry"
1.c. "Item". I want to include Year and Industry fixed effects in this test.
1.d. "Margin". I want to include Year and Industry fixed effects in this test.
1.e. "CEO". I want to include Year and Industry fixed effects in this test.

2. Finally, I want to include all significant results from (1) in an overall regression to explain ME with variables form related (continuous variables) as control variables.

As I am using Panel Data, my understanding is that I should use xtreg to run regressions.

However, because my x-variables is either Group or Binary, I would run a Anova test - but is this even possible for Panel data?

I have provided a section of my dataset - I do not expect any significant results from it

It would be very helpful if you could explain solutions to my problems in laymen terms and provide relevant stata codes.

Best,
Niels

I have provided a section of my dataset for the purpose of methodology - I do not expect any significant results from it.

ID	ME	ME ABS	OPTM	Year	Industry	Item	Margin	CEO
3	0,003289	0,003289	1	2004	20	4	0	229
3	0,025994	0,025994	1	2005	20	4	0	229
3	0,009777	0,009777	1	2006	20	4	0	229
3	0,036084	0,036084	1	2007	20	3	0	229
5	0,00439	0,00439	1	2004	45	3	0	197
5	-0,0031	0,003101	0	2005	45	3	0	322
5	-0,01207	0,012073	0	2006	45	3	0	322
5	-0,0168	0,016804	0	2007	45	3	0	322
7	0,005895	0,005895	1	2004	20	3	1	400
7	0,008512	0,008512	1	2005	20	3	1	400
7	0,026977	0,026977	1	2006	20	3	1	400
7	0,032442	0,032442	1	2007	20	3	1	400
9	-0,03005	0,030051	0	2004	20	3	0	315
9	-0,00589	0,005895	0	2005	20	3	0	315
9	-0,01573	0,015732	0	2006	20	3	0	315
9	0,011752	0,011752	1	2007	20	3	0	315
10	-0,00454	0,004543	0	2004	50	2	0	324
10	-0,00207	0,002071	0	2005	50	2	0	324
10	-0,0202	0,020202	0	2006	50	2	0	324
10	-0,01215	0,012154	0	2007	50	2	0	320
12	-0,00625	0,006246	0	2004	50	4	0	254
12	-0,00713	0,007126	0	2005	50	3	0	254
12	-0,00932	0,009321	0	2006	50	3	0	230
12	-0,00642	0,006419	0	2007	50	3	0	230
13	0,021874	0,021874	1	2004	50	3	0	190
13	-0,01695	0,016949	0	2005	50	3	0	190
13	-0,02031	0,020307	0	2006	50	3	0	190
13	-0,03125	0,031252	0	2007	50	3	0	190
15	10,06413	10,06413	1	2004	20	3	0	260
15	-0,88398	0,883975	0	2005	20	3	0	260
15	-0,27877	0,278767	0	2006	20	3	0	260
15	0,051239	0,051239	1	2007	20	3	0	260
16	-0,01078	0,010779	0	2004	20	4	0	176
16	-0,00768	0,007676	0	2005	20	4	0	176
16	0,064459	0,064459	1	2006	20	4	0	176
16	-0,04021	0,040211	0	2007	20	4	0	31
20	-9,9E-05	9,86E-05	0	2004	50	2	0	312
20	0,016801	0,016801	1	2005	50	2	0	312
20	-0,01023	0,01023	0	2006	50	2	0	312
20	0,028739	0,028739	1	2007	50	2	0	312
21	-0,04622	0,046225	0	2004	20	3	0	71
21	0,003363	0,003363	1	2005	20	3	0	71
21	-0,01995	0,019954	0	2006	20	3	0	71
23	-0,03273	0,03273	0	2004	50	1	0	177
23	0,09583	0,09583	1	2005	50	1	0	177
23	0,005724	0,005724	1	2006	50	1	0	177
23	-0,00595	0,005945	0	2007	50	1	0	86
26	-0,01327	0,013273	0	2004	20	3	0	246
26	-0,02248	0,022482	0	2005	20	3	0	246
26	-0,02724	0,027244	0	2007	20	3	0	246
27	0,180393	0,180393	1	2004	20	3	0	396
27	0,192757	0,192757	1	2005	20	3	0	396
27	0,191469	0,191469	1	2006	20	3	0	396
27	0,190959	0,190959	1	2007	20	3	0	396
31	0,017358	0,017358	1	2004	45	2	0	370
31	0,00561	0,00561	1	2005	45	2	0	370
31	0,002792	0,002792	1	2006	45	2	0	370
31	0,033438	0,033438	1	2007	45	2	0	370
34	-0,08585	0,085846	0	2004	50	1	0	421
34	-0,09493	0,094933	0	2005	50	1	0	84
34	-0,16164	0,161637	0	2006	50	1	0	84
34	-0,41045	0,410452	0	2007	50	1	0	84
35	0,006808	0,006808	1	2004	50	2	0	157
35	0,004284	0,004284	1	2005	50	2	0	157
35	-0,05848	0,058479	0	2006	50	2	0	157
35	0,003804	0,003804	1	2007	50	2	0	157
36	1,013604	1,013604	1	2005	10	3	1	355
36	-0,08956	0,08956	0	2006	10	3	1	355
36	-0,06873	0,068732	0	2007	10	3	1	355
42	0,072528	0,072528	1	2004	60	3	1	407
42	0,066608	0,066608	1	2005	60	3	1	407
42	0,000798	0,000798	1	2006	60	3	1	82
42	-0,01694	0,016941	0	2007	60	3	1	82
44	0,959915	0,959915	1	2004	20	2	0	365
44	0,470113	0,470113	1	2005	20	1	0	365
44	1,681689	1,681689	1	2006	20	3	0	365
44	-0,90184	0,901837	0	2007	20	2	0	365
46	-0,00323	0,003233	0	2004	40	2	0	426
46	-0,00372	0,003716	0	2005	40	2	0	426
46	-0,00777	0,00777	0	2006	40	2	0	426
46	0,098069	0,098069	1	2007	40	2	0	426
48	-0,08137	0,081365	0	2007	10	3	1	344
49	0,016271	0,016271	1	2007	20	3	1	275
50	0,008602	0,008602	1	2004	10	5	0	50
50	0,021392	0,021392	1	2005	10	5	0	50
50	0,001718	0,001718	1	2006	10	5	0	284
50	-0,01793	0,01793	0	2007	10	5	0	284
52	-0,06656	0,066564	0	2005	50	1	0	54
52	-0,04578	0,045779	0	2006	50	1	0	54
52	-0,09461	0,09461	0	2007	50	5	0	54
53	-0,00702	0,007024	0	2004	40	1	0	191
53	-0,01283	0,01283	0	2005	40	1	0	191
53	0,007478	0,007478	1	2006	40	1	0	191
54	0,00325	0,00325	1	2005	50	3	0	32
54	0,022377	0,022377	1	2006	50	3	0	32
54	-0,00536	0,005362	0	2007	50	3	0	348
55	-0,00014	0,000143	0	2004	50	2	0	185
55	0,010558	0,010558	1	2005	50	2	0	115
55	-0,00842	0,008422	0	2006	50	2	0	115
55	-0,02973	0,029726	0	2007	50	2	0	115
60	-0,02101	0,021011	0	2004	50	1	0	422
60	-0,00693	0,006926	0	2005	50	1	0	422
60	-0,02111	0,02111	0	2006	50	2	0	416
60	-0,01204	0,012045	0	2007	50	2	0	416
65	-0,00952	0,00952	0	2004	50	2	0	83
65	-0,00162	0,001619	0	2005	50	2	0	83
65	-0,00111	0,001112	0	2006	50	2	0	83
65	-0,01304	0,013041	0	2007	50	2	0	83
66	0,04819	0,04819	1	2004	10	3	0	188
66	0,016077	0,016077	1	2005	10	3	0	188
66	0,264813	0,264813	1	2006	10	3	0	188
66	0,271618	0,271618	1	2007	10	3	0	408
68	-0,00458	0,004577	0	2004	50	2	0	182
68	-0,0006	0,000604	0	2005	50	2	0	182
68	-0,00206	0,002059	0	2006	50	2	0	182
68	0,000628	0,000628	1	2007	50	2	0	98
69	0,041654	0,041654	1	2004	50	2	0	253
69	-0,01067	0,010671	0	2005	50	2	0	104
69	-0,00986	0,009858	0	2006	50	2	0	104
69	0,007243	0,007243	1	2007	50	2	0	104
72	-0,07098	0,070978	0	2004	40	2	0	242
72	-0,01853	0,018532	0	2005	40	2	0	242
72	-0,00397	0,003967	0	2006	40	2	0	242
72	0,045728	0,045728	1	2007	40	2	0	242
73	-0,23154	0,231541	0	2005	50	2	0	219
73	-0,07223	0,072227	0	2006	50	2	0	219
73	-0,02269	0,02269	0	2007	50	2	0	219
79	-0,00651	0,006508	0	2004	50	2	0	311
79	-0,00091	0,000909	0	2005	50	2	0	311
79	-0,01135	0,011354	0	2006	50	2	0	311
79	0,031099	0,031099	1	2007	50	2	0	311
82	0,19635	0,19635	1	2005	20	4	0	131
82	3,281779	3,281779	1	2006	20	3	0	410
82	0,211511	0,211511	1	2007	20	1	0	410
85	0,060752	0,060752	1	2005	10	2	0	334
85	-0,19819	0,198193	0	2006	10	2	0	210
85	-0,05474	0,054738	0	2007	10	2	0	210
88	-0,00473	0,004732	0	2004	40	2	0	183
88	0,008764	0,008764	1	2005	40	2	0	183
88	-0,02634	0,02634	0	2006	40	2	0	183
88	-0,02833	0,028331	0	2007	40	1	0	183
90	-0,075	0,074999	0	2004	50	3	0	272
90	0,085016	0,085016	1	2005	50	3	0	272
90	-0,07688	0,076877	0	2006	50	3	0	313
90	-0,4773	0,477299	0	2007	50	3	0	313
92	-0,05442	0,054422	0	2007	45	3	0	214
93	-0,00537	0,005366	0	2004	50	3	1	438
93	-0,01186	0,011861	0	2005	50	3	1	438
93	0,00983	0,00983	1	2006	50	3	1	438
93	-1,8E-05	1,84E-05	0	2007	50	3	1	389
96	-0,06039	0,060391	0	2004	50	4	0	373
96	-0,01094	0,010942	0	2005	50	4	0	373
96	0,046017	0,046017	1	2006	50	4	0	373
96	-0,00231	0,002307	0	2007	50	4	0	373
100	-0,02359	0,023592	0	2004	40	2	0	401
100	-0,06232	0,062319	0	2005	40	2	0	401
100	-0,03813	0,038126	0	2006	40	2	0	401
100	-0,02652	0,026519	0	2007	40	2	0	401
101	-0,01248	0,012482	0	2004	45	2	0	38
101	0,027878	0,027878	1	2005	45	2	0	38
101	0,021334	0,021334	1	2006	45	2	0	38
101	0,050478	0,050478	1	2007	45	2	0	38
103	0,014229	0,014229	1	2004	50	2	0	180
103	0,014934	0,014934	1	2005	50	2	0	180
103	-0,00063	0,000634	0	2006	50	2	0	180
103	-0,01555	0,015549	0	2007	50	2	0	180
104	-0,00128	0,001277	0	2004	50	1	0	149
104	-0,01518	0,015181	0	2005	50	1	0	149
104	-0,01774	0,017744	0	2006	50	1	0	149
104	-0,00299	0,002994	0	2007	50	1	0	149
108	-0,00226	0,002257	0	2005	50	2	0	360
108	-0,00708	0,007084	0	2006	50	2	0	360
108	-0,01661	0,016606	0	2007	50	2	0	360
110	-0,00623	0,006226	0	2004	50	2	0	338
110	-0,00433	0,004334	0	2005	50	2	0	338
110	0,010965	0,010965	1	2006	50	2	0	338
110	-0,00172	0,001721	0	2007	50	2	0	37
113	0,029253	0,029253	1	2004	40	2	0	377
113	-0,03528	0,035276	0	2005	40	2	0	263
113	-0,021	0,021001	0	2006	40	2	0	263
113	0,086148	0,086148	1	2007	40	2	0	263
115	0,009363	0,009363	1	2004	50	2	0	166
115	-0,01705	0,017054	0	2005	50	2	0	166
115	0,018992	0,018992	1	2006	50	2	0	166
119	-0,03753	0,037533	0	2004	50	2	0	100
119	-0,02677	0,026771	0	2005	50	2	0	100
119	-0,04398	0,04398	0	2006	50	2	0	100
119	-0,03121	0,031208	0	2007	50	2	0	100
120	0,006125	0,006125	1	2004	50	2	0	113
120	-0,01482	0,01482	0	2005	50	2	0	122
120	-0,00439	0,004392	0	2006	50	2	0	122
120	0,000701	0,000701	1	2007	50	2	0	122
121	0,206962	0,206962	1	2007	50	3	0	328
122	-0,03176	0,031761	0	2004	40	2	0	59
122	-0,01008	0,010078	0	2005	40	2	0	59
122	-0,016	0,015997	0	2006	40	2	0	59
122	0,029021	0,029021	1	2007	40	2	0	59
123	-0,01285	0,012854	0	2004	40	2	0	114
123	-0,02298	0,022984	0	2005	40	2	0	114
123	-0,01643	0,016429	0	2006	40	2	0	114
123	0,042742	0,042742	1	2007	40	2	0	114
126	-0,00993	0,009928	0	2004	50	2	0	193
126	-0,00839	0,008392	0	2005	50	2	0	193
126	-0,00292	0,002922	0	2006	50	2	0	193
126	0,0125	0,0125	1	2007	50	2	0	193
127	-0,05572	0,055715	0	2004	50	2	0	251
127	0,138872	0,138872	1	2005	50	2	0	251
127	0,012966	0,012966	1	2006	50	2	0	358
127	0,008048	0,008048	1	2007	50	2	0	47
133	0,01452	0,01452	1	2004	50	1	0	119
133	0,019027	0,019027	1	2005	50	1	0	119
133	-0,00894	0,008941	0	2006	50	1	0	119
133	0,001545	0,001545	1	2007	50	2	0	119

[Rhys Williams]

Hi Niels,

If you have a panel dataset with a continuous outcome variable then you can use "xtreg" to estimate a regression regardless of whether your dependent variables are continuous or binary.
It sounds like you want to run a fully-specified model. To run fixed-effects you use "xtreg Y X controls i.year, fe cluster(units)" where I suggest you cluster your standard errors.

Best,
Rhys