[Luca Toni]

We observe Y0, and if audited and Y0<T (some threshold), then the team is sanctioned. But some other teams may meet that threshold too (or be close to it), but are not audited and are unsanctioned. (These are the controls.) We want to know whether Y1-Y0 is larger if sanctioned. Is this right?

The treatment depends on Y0, the outcome in period 0, so this is very tricky, I think.

Start here for now to get a rough feel for what may be in the data.

For sanctioned firms, look at the value of the dependent variable in the sanctioned year. I suspect there is some cutoff (may be rough). Set this as T.

Set a sample of firms where Y0 is not too much bigger than T. These are financially distressed firms that are not sanctioned.

Make tables for each cohort that has Y0 and the mean for a few years after the sanction (Y1), by treated and controls. (I recognize the data may be messier than this).

See if Y1/Y0-1 is bigger for the sanctioned firms.

Now, you may be able to do this, but needs some thinking.

g distance = Y0/T.

logit sanction distance in (treatment year)
predict PS
g IPW = PS/(1-PS)

run eventdd and weight by IPW.

George Ford
I don't think I can apply what you suggested as my dependent variable is just a proxy variable and not the actual metric from the financial statements.