Panel-Data regression with time dummies, FE and time variant treatment effects

[Phil Smith]

Dear Stata-Experts,

I have some trouble concerning my regression model for a panel data analysis. The dataset includes observations of 200 firms over a period of 6 years (2000 - 2005) regarding merger activities and profit. The aim is to model the impact a merger has on a firms profit. For that reason, a regression with fixed effects should be done. At the moment it looks like that:

 xtreg depvar indepvar i.postmerge##i.treated i.year, fe

With 'postmerge' (1 for years after mergers) and 'treated' (1 for firms involved in a merger (constant over time)) as binary dummy variable. The challenge is, that the year, in which a merger takes place, differs from firm to firm. Therefore the variable 'postmerge' is 0 for all the firms of the control group over all the time. The problem is, that if I run this regression in Stata, 1.postmerge*1.treat and 1.treat gets dropped because of collinearity. I suppose that the drop of 1.treat is due to the fixed effects (variable treat does not change over time). Now, I have several questions:

1. If I replace the interaction of postmerge and treated with an interaction like i.year#i.treat, Stata keeps the variable treat. Does this makes sense and how can I interpret the results in terms of an overall result?
2. Which combination measures the treatment effect the best way while keeping fixed effects in mind?
3. Most important: What would a appropriate xtreg-model would look like for this estimation?

I appreciate any kind of help.
Thanks in advance!

Regards,
Phil