Hello,

For my research I am currently investigating the effect of financial ratios on the initial return of a company (that is, the return on the first trading day after an IPO). However, these ratios contain positive and negative values due to negative earnings at the moment of the IPO. I wanted to use a logarithmic transformation to achieve a normal distribution since these values tend to have outliers and exist in a wide range. I have read a lot of forums where people add a constant to solve this problem, however, this is not my preferred method as it is very sensitive to the chosen constant. What is the best method to deal with this problem?

A second question, I would like to investigate if the relation between my dependent variable and positive and negative numbers for my independent variable differs. In other words,

Regress Initial Return = a + b1*X- + b2*X+ + c

Where X+ { X > 0 --> X } so that I can compare the value of b1 and b2
X =< 0 --> 0

Thanks in advance,