Please help with calculating CompAcct4 and CompAcct4 (Financial statement comparability)

[Dam Loan]

Dear Stata Forum Community,

I am conducting research on financial statement comparability and need to compute two metrics:

• CompAcct4it: The average CompAcctijt of the four firms (j) with the highest comparability to firm i during period t.
• CompAcct10it: The average CompAcctijt of the ten firms (j) with the highest comparability to firm i during period t.

My dataset includes:

• Firm i (companyid)
• Firm j (companyid2)
• Year (Year)
• Industry (Industry)
• CompAcct (a measure of financial statement comparability between firm i and firm j)

I attempted the following code:

drop if companyid == companyid2 // Remove self-comparison

gsort companyid Year Industry -CompAcct // Sort by highest comparability

bysort companyid Year Industry: gen rank = _n // Rank firms j for each firm i

bysort companyid Year Industry: egen Com1 = mean(CompAcct) if rank <= 4 // Average top 4 firms

bysort companyid Year Industry: egen Com2 = mean(CompAcct) if rank <= 10 // Average top 10 firms


I want to confirm: Is this approach correct for calculating the comparability metrics?