Dear Statalist members.

For my thesis, I am running a tobit regression with the DV being the ownership percentage in acquisitions.

I have observations from 4 years (but not all companies have an acquisition every year and some have multiple acquisitions per year). As a consequence, the point in time cannot be used as a panel identifier which leaves only the company grouping: xtset CompanyID. As it was done in similar studies, I used Time as a categorical variable instead.

I got recommended that it will be important to decide between tobit and xttobit:

. tobit acquisitionstake IVs i.Year, ll(0.05) ul(1)

. xtset CompanyID
. xttobit acquisitionstake IVs i.Year, ll(0.05) ul(1)

Therefore, I used the likelihood-ratio (LR) test that compares the panel regression with the pooled tobit regression with the null hypothesis being the absence of panel effects. The chi-bar-square of 13.97 (p-value < 0.01) indicates the null hypothesis can be rejected and that xttobit is the appropriate regression (rho =0.43 >0).

However, given the data structure, I have my doubts about whether xttobit should be used in this scenario at all. As xttobit executes a random effects (RE) Tobit regression assuming RE on the panel level, can I use the model with only the companyID as panel identifier?

In my research, I came across a study that has a very similar setup to my thesis (Chari & Chang, 2009). They did not test between tobit and xttobit and used but used a model like the one following. The clustering accounts for acquisitions made by the same companies.

. tobit acquisitionstake IVs i.Year, ll(0.05) ul(1) vce(cluster CompanyID)

To summarize my question, I have some doubts about which approach to follow. Given the data structure and the use in the existing study, I would rather opt for the second option. However, as the LR test considers xttobit to be superior, I am not sure about the right procedure.

Therefore, I am very thankful for any help regarding the choice among the models.

Best regards,
Pascal



Source:
Chari, M. D., & Chang, K. (2009). Determinants of the share of equity sought in cross-border acquisitions. Journal of International Business Studies, 40(8), 1277-1297.