Hi everyone, I have a panel data (2017-2021) set where I am trying to assess whether CEO traits (IV) influence a firm's environmental innovation score (DV).
I have tested whether I have a panel-wise effect (which I do), and I have conducted the Hausman test to decide whether I should use a fixed effects regression or a random effects one.
When I run the Hausman test it clearly indicates I should use a Random effects regression, since Prob > chi2 = 0.7223. Mundlak approach also suggests against fixed effects.
However, in the context of what I am trying to investigate, it seems to me that a fixed effects regression would make much more intuitive sense as I am trying to investigate characteristics that influence a firm from within.
I also read this: "Whenever there is a clear idea that individual characteristics of each entity or group affect the regressors, use fixed effects. For example, macroeconomic data collected for most countries overtime. There might be a good reason to believe that countries’ economic performance may be affected by their own internal characteristics: type of government, political environment, cultural characteristics, type of public policies, etc. " (Torres-Reyna, 2007). I thought this sounds very applicable to what I am trying to do.
My questions are therefore:
PS: I did see there was a thread here (see link) about a similar question, but I believe it was diverted as it turned out the person in question did not have panel wise effects to start with:
Hope my question is clear and thank you in advance for any advice!
I have tested whether I have a panel-wise effect (which I do), and I have conducted the Hausman test to decide whether I should use a fixed effects regression or a random effects one.
When I run the Hausman test it clearly indicates I should use a Random effects regression, since Prob > chi2 = 0.7223. Mundlak approach also suggests against fixed effects.
However, in the context of what I am trying to investigate, it seems to me that a fixed effects regression would make much more intuitive sense as I am trying to investigate characteristics that influence a firm from within.
I also read this: "Whenever there is a clear idea that individual characteristics of each entity or group affect the regressors, use fixed effects. For example, macroeconomic data collected for most countries overtime. There might be a good reason to believe that countries’ economic performance may be affected by their own internal characteristics: type of government, political environment, cultural characteristics, type of public policies, etc. " (Torres-Reyna, 2007). I thought this sounds very applicable to what I am trying to do.
My questions are therefore:
- Should I stay with the random effects regression or can I, in the context of my study, choose to use the fixed effects instead, despite the Hausman test result?
- If I should use the random effects regression, how do I interpret the results, particularly in regards to the coefficient?
PS: I did see there was a thread here (see link) about a similar question, but I believe it was diverted as it turned out the person in question did not have panel wise effects to start with:
Hope my question is clear and thank you in advance for any advice!
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