STATA Categorical Regression

[Hidde Hartman]

Hello everyone,

I am writing my Master Thesis and doing research on the influence of Independency Indicators of acquiring firm on their short-term stock return before and after an m&a event.
These indicators are noted by categorical values (A, B, C, D) and I have taken them as dummies into my regression. To also research my moderator of total assets I have made interaction terms between these dummies and total assets to look into the effect of this moderating variable. Are the steps of making the indicators into dummies and multiplying them to make an interaction term valid steps?

Would mean a lot if I could get some help on this.

[George Ford]

If the indicator is not a string, then you can use i.indicator and Stata will give you a coefficient on each value (leaving out one). (you can easily generate a numerical value from the string if needed). Or you can b1.indicator if you want to choose a particular base level.

The interactions would be i.indicator#c.continuous (which is the interactions), or i.indicator##c.continuous which gives the standalone and interaction variables.

By using #, you have more freedom in conducting tests and estimating margins. Note, however, that some estimation commands won't let you use this coding, so you'll have to create all the interactions and dummies for the categorical variable.

[Hidde Hartman]

Is a regression like this valid for what I mentioned earlier? With the Ownership Concentration x Total Assets and Indicator x Total Assets as the moderating variables?

	(-10,10)	(-5,5)	(-1,1)
VARIABLES	CAR	CAR	CAR
Ownership Concentration	-0.000603	0.000953	0.000292
	(0.00148)	(0.000800)	(0.000500)
Director Independency Indicator A	-	-	-
Director Independency Indicator Amin	0.363***	0.152***	0.0170
	(0.0511)	(0.0546)	(0.0571)
Director Independency Indicator B	-	-	-
Director Independency Indicator Bmin	0.378***	0.272***	0.0186
	(0.0408)	(0.0294)	(0.0191)
Director Independency Indicator D	2.792	1.730	0.354
	(2.237)	(1.343)	(0.283)
Acquirer Total Assets	-0.0619***	-0.0593***	-0.0586***
	(0.0185)	(0.0124)	(0.00582)
Predeal Acquirer Market Cap	-0.00498*	-0.00499**	-0.00670***
	(0.00288)	(0.00238)	(0.00190)
Method of Payment in Bonds	-0.0335	0.0836***	0.0383*
	(0.0279)	(0.0230)	(0.0224)
Method of Payment in Business Assets	-0.0758***	-	-
	(0.00924)
Method of Payment in Cash	0.00324	0.105***	0.0491***
	(0.00637)	(0.00588)	(0.00419)
Method of Payment in Cash Reserves	-0.0131	0.103***	0.0459***
	(0.0135)	(0.00996)	(0.00643)
Method of Payment in Cash Assumed	0.00416	0.109***	0.0570***
	(0.0180)	(0.0164)	(0.0105)
Method of Payment in Converted Debt	-1.107	-0.578	-0.104
	(0.707)	(0.391)	(0.0752)
Method of Payment in Deferred Payment	-0.00435	0.0940***	0.0366***
	(0.0203)	(0.0157)	(0.0106)
Method of Payment in Earn Out	-0.00162	0.0987***	0.0393***
	(0.00800)	(0.00708)	(0.00491)
Method of Payment in Liabilities	-0.00293	0.0999***	0.0485***
	(0.00768)	(0.00696)	(0.00521)
Method of Payment in Other	-0.0527	0.0439	0.0201
	(0.0832)	(0.0499)	(0.0321)
Method of Payment in Services	-	0.0758**	0.00936
		(0.0300)	(0.0275)
Method of Payment in Shares	0.0100	0.109***	0.0430***
	(0.0104)	(0.00875)	(0.00622)
Ownership Concentration x Total Assets	9.38e-05	-7.81e-05	-1.05e-05
	(0.000180)	(9.76e-05)	(6.00e-05)
Indicator A x Total Assets	0.0233***	0.0589***	0.0419***
	(0.00627)	(0.00672)	(0.00352)
Indicator Aplus x Total Assets	0.0486***	0.0635***	0.0586***
	(0.00586)	(0.00765)	(0.00365)
Indicator Amin x Total Assets	-0.0841***	0.0102	0.0567***
	(0.0169)	(0.0143)	(0.0141)
Indicator B x Total Assets	-	0.00540	-
		(0.00965)
Indicator Bplus x Total Assets	0.0497***	0.0649***	0.0585***
	(0.00601)	(0.00766)	(0.00371)
Indicator Bmin x Total Assets	-0.0506***	-	0.0593***
	(0.0132)		(0.00652)
Indicator D x Total Assets	-0.195	-0.0857	0.0279
	(0.203)	(0.123)	(0.0264)
Constant	0.152	-0.106	0.00853
	(0.149)	(0.0767)	(0.0467)
Observations	1,730	1,730	1,730
R-squared	0.122	0.092	0.054

[George Ford]

The missing coef may indicate a collinearity. I'd track that down. It may be fine, but there may be some replication in the variables.

But it is estimating, which is a good start.

Whether it is valid depends on exactly what you're up to, which I do not know.