Dear all,

i am running a regression using panel data and looking at the effect of company financial data and characteristics on tax adjustments. The tax adjustments paid in period t are caused in periods before (t-1 oder t-2) and were found after tax audit. I don´t have many observations per group and i want to control for different company characteristics (dummy variables). The effects are primarily between the groups not within the time series. In my opinion the RE Model would be the logical consequence, but the hausman test rejects H0 so i can´t use RE.

This is how my xtreg, fe regression looks like:

Code:
Code:
xtreg LOG_STN l1.LOG_SALES l2.LOG_SALES l1.PROV l2.PROV l1.LEV l2.LEV l1.DEBT l2.DEBT l1.ROA l2.ROA l1.IVG_intense l2.IVG_intense l1.KAP_intense l2.KAP_intense l1.VOR_intense l
> 2.VOR_intense FamUN AUSL_KSTR y2012 y2013 y2014 y2015 y2016 y2017 bw bay hes sac nrw c f g m n, fe
note: FamUN omitted because of collinearity
note: AUSL_KSTR omitted because of collinearity
note: bw omitted because of collinearity
note: bay omitted because of collinearity
note: hes omitted because of collinearity
note: sac omitted because of collinearity
note: nrw omitted because of collinearity
note: c omitted because of collinearity
note: f omitted because of collinearity
note: g omitted because of collinearity
note: m omitted because of collinearity
note: n omitted because of collinearity

Fixed-effects (within) regression               Number of obs     =      3,518
Group variable: idc                             Number of groups  =      2,189

R-sq:                                           Obs per group:
     within  = 0.0216                                         min =          1
     between = 0.0001                                         avg =        1.6
     overall = 0.0002                                         max =          6

                                                F(22,1307)        =       1.31
corr(u_i, Xb)  = -0.1703                        Prob > F          =     0.1501

------------------------------------------------------------------------------
     LOG_STN |      Coef.   Std. Err.      t    P>|t|     [95% Conf. Interval]
-------------+----------------------------------------------------------------
   LOG_SALES |
         L1. |   .8047563   .3752725     2.14   0.032     .0685539    1.540959
         L2. |  -.7372711   .3916178    -1.88   0.060    -1.505539    .0309972
             |
        PROV |
         L1. |  -.2168305    1.86602    -0.12   0.908    -3.877553    3.443892
         L2. |   2.515237   1.810256     1.39   0.165    -1.036087    6.066562
             |
         LEV |
         L1. |   .0663668   .0781916     0.85   0.396     -.087028    .2197616
         L2. |   -.066027   .0374569    -1.76   0.078    -.1395093    .0074553
             |
        DEBT |
         L1. |  -.0293448   .6116295    -0.05   0.962    -1.229228    1.170538
         L2. |   .3254192   .5211656     0.62   0.532    -.6969934    1.347832
             |
         ROA |
         L1. |  -.6775415   1.158015    -0.59   0.559    -2.949314    1.594231
         L2. |  -2.684723   1.101758    -2.44   0.015     -4.84613   -.5233155
             |
 IVG_intense |
         L1. |   1.390094    2.55196     0.54   0.586    -3.616293     6.39648
         L2. |   -1.74212   2.698345    -0.65   0.519     -7.03568    3.551441
             |
 KAP_intense |
         L1. |  -.0716247   1.594696    -0.04   0.964    -3.200068    3.056818
         L2. |  -.6143406   1.284293    -0.48   0.632    -3.133843    1.905161
             |
 VOR_intense |
         L1. |   1.185455   .9368948     1.27   0.206     -.652527    3.023437
         L2. |    .800335   .8815385     0.91   0.364    -.9290501     2.52972
             |
       FamUN |          0  (omitted)
   AUSL_KSTR |          0  (omitted)
       y2012 |  -.1148903   .2005894    -0.57   0.567    -.5084027    .2786221
       y2013 |  -.2193175   .2076353    -1.06   0.291    -.6266523    .1880173
       y2014 |  -.3174528   .2204653    -1.44   0.150    -.7499573    .1150517
       y2015 |  -.2075198    .233365    -0.89   0.374    -.6653308    .2502912
       y2016 |  -.3926721   .2435855    -1.61   0.107    -.8705334    .0851892
       y2017 |  -.2898164   .3278856    -0.88   0.377    -.9330559    .3534232
          bw |          0  (omitted)
         bay |          0  (omitted)
         hes |          0  (omitted)
         sac |          0  (omitted)
         nrw |          0  (omitted)
           c |          0  (omitted)
           f |          0  (omitted)
           g |          0  (omitted)
           m |          0  (omitted)
           n |          0  (omitted)
       _cons |   1.903193    4.79805     0.40   0.692    -7.509529    11.31591
-------------+----------------------------------------------------------------
     sigma_u |  3.7078212
     sigma_e |  2.0251375
         rho |  .77023059   (fraction of variance due to u_i)
------------------------------------------------------------------------------
F test that all u_i=0: F(2188, 1307) = 2.12                  Prob > F = 0.0000
Hausman test:
Code:
 Test:  Ho:  difference in coefficients not systematic

                 chi2(22) = (b-B)'[(V_b-V_B)^(-1)](b-B)
                          =       76.77
                Prob>chi2 =      0.0000
xtreg, re:
Code:
 xtreg LOG_STN l1.LOG_SALES l2.LOG_SALES l1.PROV l2.PROV l1.LEV l2.LEV l1.DEBT l2.DEBT l1.ROA l2.ROA l1.IVG_intense l2.IVG_intense l1.KAP_intense l2.KAP_intense l1.VOR_intense l
> 2.VOR_intense FamUN AUSL_KSTR y2012 y2013 y2014 y2015 y2016 y2017 bw bay hes sac nrw c f g m n, re

Random-effects GLS regression                   Number of obs     =      3,518
Group variable: idc                             Number of groups  =      2,189

R-sq:                                           Obs per group:
     within  = 0.0006                                         min =          1
     between = 0.5251                                         avg =        1.6
     overall = 0.5054                                         max =          6

                                                Wald chi2(34)     =    2512.84
corr(u_i, X)   = 0 (assumed)                    Prob > chi2       =     0.0000

------------------------------------------------------------------------------
     LOG_STN |      Coef.   Std. Err.      z    P>|z|     [95% Conf. Interval]
-------------+----------------------------------------------------------------
   LOG_SALES |
         L1. |    .965822   .1913759     5.05   0.000     .5907322    1.340912
         L2. |   .1194994   .1908272     0.63   0.531    -.2545151    .4935139
             |
        PROV |
         L1. |   1.435207   1.127386     1.27   0.203    -.7744284    3.644843
         L2. |   -.734266   1.142288    -0.64   0.520    -2.973109    1.504578
             |
         LEV |
         L1. |  -.0132113    .027322    -0.48   0.629    -.0667613    .0403388
         L2. |   .0014444   .0193577     0.07   0.941    -.0364961    .0393849
             |
        DEBT |
         L1. |  -.1789497   .3023988    -0.59   0.554    -.7716405    .4137411
         L2. |   -.436075   .2741722    -1.59   0.112    -.9734427    .1012927
             |
         ROA |
         L1. |  -.1335986   .6398764    -0.21   0.835    -1.387733    1.120536
         L2. |   -1.52944   .6135618    -2.49   0.013    -2.731998   -.3268806
             |
 IVG_intense |
         L1. |   .0267801   1.624745     0.02   0.987    -3.157661    3.211221
         L2. |   1.663602   1.592992     1.04   0.296    -1.458605    4.785808
             |
 KAP_intense |
         L1. |   .2447735   .8247597     0.30   0.767    -1.371726    1.861273
         L2. |   1.489765   .7936084     1.88   0.060    -.0656792    3.045208
             |
 VOR_intense |
         L1. |  -.3348842   .4761082    -0.70   0.482    -1.268039    .5982708
         L2. |  -.3350098    .460146    -0.73   0.467    -1.236879    .5668598
             |
       FamUN |  -.5909862   .1461903    -4.04   0.000    -.8775138   -.3044586
   AUSL_KSTR |   .4322607     .13506     3.20   0.001     .1675479    .6969735
       y2012 |  -.0770948   .1694286    -0.46   0.649    -.4091688    .2549791
       y2013 |  -.3837821   .1674422    -2.29   0.022    -.7119628   -.0556015
       y2014 |  -.1691641   .1717899    -0.98   0.325     -.505866    .1675379
       y2015 |   .1384244   .1810782     0.76   0.445    -.2164823    .4933311
       y2016 |    .068587   .1829719     0.37   0.708    -.2900313    .4272053
       y2017 |  -.0408278   .2510171    -0.16   0.871    -.5328124    .4511567
          bw |  -.1638173   .1698556    -0.96   0.335    -.4967282    .1690935
         bay |  -.0336689    .161638    -0.21   0.835    -.3504736    .2831357
         hes |   .1426045   .2052941     0.69   0.487    -.2597646    .5449737
         sac |   .2499873   .2373464     1.05   0.292    -.2152031    .7151778
         nrw |  -.0404006   .1467679    -0.28   0.783    -.3280604    .2472591
           c |  -.5049047   .1654168    -3.05   0.002    -.8291157   -.1806938
           f |  -1.284322   .2200182    -5.84   0.000     -1.71555   -.8530946
           g |  -.8524794   .1796878    -4.74   0.000    -1.204661   -.5002978
           m |  -.2227419   .1809266    -1.23   0.218    -.5773516    .1318678
           n |  -.1955437   .3183816    -0.61   0.539    -.8195601    .4284727
       _cons |  -8.119061   .4488191   -18.09   0.000     -8.99873   -7.239392
-------------+----------------------------------------------------------------
     sigma_u |  1.7691576
     sigma_e |  2.0251375
         rho |  .43284126   (fraction of variance due to u_i)
------------------------------------------------------------------------------
Here xttest0 after xtreg, re:
Code:
Breusch and Pagan Lagrangian multiplier test for random effects

        LOG_STN[idc,t] = Xb + u[idc] + e[idc,t]

        Estimated results:
                         |       Var     sd = sqrt(Var)
                ---------+-----------------------------
                 LOG_STN |   13.63771       3.692926
                       e |   4.101182       2.025137
                       u |   3.129919       1.769158

        Test:   Var(u) = 0
                             chibar2(01) =    89.51
                          Prob > chibar2 =   0.0000
When my understanding for this tests is correct, i should use FE estimator, although the R-sq is very bad?