Hi,

(this is a re-post of a previous post I have posted by accident with a title that I was not yet done writing)

I am dealing w/ panel data and am running 3 regressions based on a dummy variable that indicates credit rating category. (ratings are AAA, AA, A, BBB, BB, B, CCC)

I hypothesize that the effect of my dependant variable (earnings management) is different for BBB- and BB-rated firms, compared to other categories. This hypothesis is supported in a regression on a dummy that groups both categories (dummy is BORDERLINE=1 if BBB or BB, 0 otherwise)

Now I want to check if there's a difference BETWEEN BBB and BB-rated firms. I run a regression on a dummy for BBB (=0 if BB and =1 if BBB). I find no statistically sign differences. The same goes when i drop BBB and regress on BB (=1 if BB, 0 otherwise): the coefficient on BB is significant just like in the original model.

BUT if i regress on BB, and BBB is still in the sample, the coefficient on BB becomes insignificant. This seems to be suggesting to me that this result is driven by the BBB group.

How can this be the case? Am I not essentially running 2 identical tests?


Code:
g BBB = 0 if rating =="BB"
replace BBB = 1 if rating == "BBB"
g POST_BBB = POST*BBB

Code:
reghdfe ABPROD BBB POST POST_BBB DSIZE DLEV DBTM DROA DMKTCAP ABACC, a(sic) cluster(gvkey)

reghdfe ABCFO  BBB POST  POST_BBB DSIZE DLEV DBTM DROA DMKTCAP ABACC, a(sic)  cluster(gvkey)

reghdfe ABDEXP BBB POST  POST_BBB DSIZE DLEV DBTM DROA DMKTCAP ABACC, a(sic)  cluster(gvkey)
Code:
g BB = 0 
replace BB =1  if rating == "BB"
g POST_BB = POST* BB 
 drop if rating ==. "BBB" reghdfe ABPROD BB POST POST_BB POST_BBB DSIZE DLEV DBTM DROA DMKTCAP ABACC, a(sic) cluster(gvkey)  reghdfe ABCFO BB POST POST_BB POST_BBB DSIZE DLEV DBTM DROA DMKTCAP ABACC, a(sic)  cluster(gvkey)  reghdfe ABDEXP BB POST POST_BB POST_BBB DSIZE DLEV DBTM DROA DMKTCAP ABACC, a(sic)  cluster(gvkey)
Code:
* Example generated by -dataex-. To install: ssc install dataex
clear
input double year long gvkey float(ABPROD ABCFO ABDEXP BBB BB POST POST_BB POST_BBB DLEV DBTM DROA DMKTCAP ABACC)
2008   3505   -1.730013   .22883296    -.445899 1 0 0 0 0   -.13215522     .096816 -.0045735687   .6231031      .1947115
2009  20338  -1.0557207      .14567    .3097367 . 0 0 0 .   -.05029216    .1345559   .031757746 -2.2393432   -.030602077
2008   2710   -.9025259   .11560844   .25538284 0 1 0 0 0    .18613347   .09934908   -.06429902  -.5229578   -.021254357
2012   4809   -.9267323    .1363228    .2330895 1 0 1 0 1  -.017841667  -.15771052   .016152345  -.9167547   -.022674557
2011   2710   -.9636471   .04666772    .3686053 0 1 1 1 0    .06988898    .7642462 -.0021777116  -.3876104    -.05210483
2012  28877   -.9511288    .1229403    .2999154 . 0 1 0 .   -.14160061     .199282    .04195441  -.7976294    -.04487421
2011   5071   1.7203083  -.57618093   -.9580992 1 0 1 0 1    .02139908   .39236495    .01966463  1.3787603    -.06815204
2011   3144    .7380345  -1.0956876   -2.419925 . 0 1 0 .    -.0999229    .3334708    .05328922  2.6230116     .12199827
2013   5597   -.7742254   .11469482    .2066243 . 0 1 0 .    .06397626   -.2850582     .0866582   .7101917   -.069256335
2014   3144   1.4164505  -1.3977017  -2.7003524 . 0 1 0 .   -.08138417  -.14122604   .009399667  2.6230116      -.362417
2006   2710     -.80946   .13914369    .2588311 0 1 0 0 0    .14156628   .25987574   -.02313412  -.3556175     .01290969
2015  66016  -.59515893    .0835389    .3372578 1 0 1 0 1    .04289544  .007315516    .00601726  -.6332006    .007224321
2009   1722  -3.7542174   .54324657   1.0815662 . 0 0 0 .    -.0702198    .3303154   -.01552239  1.0285311    -1.1522968
2011   4809  -1.0648366   .14565884     .245658 1 0 1 0 1   -.08830622    .4277507    .02885619  -.8849287   -.009079384
2010   1722 -.032900274   .10232128   .24082494 . 0 0 0 .    -.0996779    .4534232  -.018821284   .9854231    -.00347677
2007   2435   -1.412651   .09656568   .17901623 . 0 0 0 .   -.14368808  -.17598993    .06204604   .0704689    -.05202331
2011  62655     -.58898   .10962556     .169532 . 0 1 0 .    .26993334   .08343875   -.14204419 -1.1113615   -.012227118
2010   2710   -.7130704   .00961098   .57386047 0 1 0 0 0    .12144867   .16270766   -.01080352  -.3613949    .062853195
2007   3144   -.8570452  -.23945427  -.26681638 . 0 0 0 .   -.19041952   -.2334358    .10886978  2.6230116       .120211
2002   2663           .   .07254245   .20301346 . 0 0 0 .    .12250859   -.3862304  -.009216726   .5311594     -.0829592
2011   1722   4.7638335   .54324657   1.0235693 . 0 1 0 .   -.07476912    1.056484 .00027392805  1.1815481      .9877299
2013   8479    5.746288   -1.254217   -2.544613 . 0 1 0 .      .042968   -.1676498  .0044059902   2.472422     .08780587
2009 180833   -.9229865   .11269227    .2194353 1 0 0 0 0    .26993334  -.53065443  -.020774815   .3745766   -.006197353
2004   6375   -.8180135   .05962986   .02691719 1 0 0 0 0    .11581494   -.2289426   .008571558   .8633394    -.00568961
2002  62655   -.6579787   .11485443   .19290254 0 1 0 0 0    .17142415   .12539965  -.007859781  -.5352402    -.09105141
2004  20338   -.7675316    .1200235    .2331526 0 1 0 0 0   .021433637  -.09247097   .007678263  -1.482365   -.009688833
2012   3144   -.1700754   -.4487998   -.9184915 . 0 1 0 .    -.1149032   -.2221547    .04133243  2.6230116   -.015580602
2002   5071   -.6319818   .03140664   .10697074 . 0 0 0 .    .10679188  -.13308746   -.14204419  1.1255074   -.017894562
2005   5597  -1.0080678   .13869047    .3304078 . 0 0 0 .   -.03819533   -.3107275    .06443333   .6396093     .07273462
2013   2435   -1.951063  -.02046594   .02465558 . 0 1 0 .    -.0281024  -.25267512    .09584643   .5820551       .011755
2003   4809  -1.1095296    .1714203    .3108006 1 0 0 0 0     -.214898   .12556088   -.02793713 -1.7520466    .003341782
2013 144435    5.418912    .0545868    .3979453 1 0 1 0 1   -.15239178   .39660195   -.07823525  .12583447    -.12968299
2014  28877   -.9124427   .08354153   .26902157 0 1 1 1 0     -.214898  -.14196701    .08916429    .529768    -.06085035
2008   2663  -.57152605   .09286155    .1669768 . 0 0 0 .   -.05575982   -.4661626     .0697944   .9874754    -.00752483
2007   3505   -.7317346   .10786648   .18470916 1 0 0 0 0   -.09810054    .3799539  -.017490085  .19929504    .005468682
2011   2663   1.8416433  -.58651567  -.34093165 . 0 1 0 .    .08300856   .23655626    .06400376   .5255127     .28026742
2002   5597   -.8948669   .08981483    .2983295 . 0 0 0 .   -.06083205   -.2227577   -.10242002   .4772673    -.01636668
2006  66016    -.787026   .13908507    .3490902 1 0 0 0 0   -.07172075   .16657475  -.016077552 -1.1363239    .018990524
2010 142953   3.1519785   -.8010868  -1.6347816 . 0 0 0 .   -.03430456    .2185367   -.04290253    2.19094      .5857763
2015   2710    -.654348   .04938512   .20283793 0 1 1 1 0    .08618128  -.07251944  -.003289968   .7802038   -.017022766
2014   9411   -.7874458   .11663897   .23835585 1 0 1 0 1   .021283835  -.22309074   .017680593  -.4780588   -.015157825
2003   1722   2.3755054   .11227222   .37371495 . 0 0 0 .   -.04712483    .4720395   -.04683506  .23031616    .074134275
2013 179700   -.8611708   .10093424   .13079064 1 0 1 0 1   .034721017  -.12271167  -.016004063 -.10380936   -.021387257
2002   3144   .06170797  -1.3977017  -2.7003524 . 0 0 0 .     -.195323  -.26536828    .10886978  2.6230116     -.0543924
2010   9774   -.6376042   .11262868    .2422876 . 0 0 0 .    -.0562349   .47409275  -.012342013  -.4536104   -.005871306
2016   3505   -.8178222   .09046821   .18760957 1 0 1 0 1    .04438335    .2566283    .09078398   .3819532   -.005692217
2007   4809  -1.0886261   .13950287   .26554468 1 0 0 0 0     -.214898   -.0812833    .04250089  -1.267827    -.02390835
2016   4809   -.8943385   .13436177    .2017637 1 0 1 0 1 -.0008630455 .0013207495  -.013631701   -1.23232    -.01432232
2010  20338  -1.1838899   .18381703    .4809025 . 0 0 0 .    .07978526   .18608585  -.017326102 -1.9864936    -.02375149
2006   3138  -1.2538137    .1690378    .3316411 1 0 0 0 0     .2364482  -.20953003   -.05066036 -2.3688588    .014244232
2015   4809   -.9469118   .13136438   .21634015 1 0 1 0 1   .008102238 -.032543182   .005590305 -1.0417709    -.02273758
2007   5071    2.825689   -.6848263   -1.192579 1 0 0 0 0   -.03777611   -.0948762   .009337235   1.026124     .08999076
2013 180833   -.9467896   .10525902   .18562423 1 0 1 0 1    .01936838   -.3415318    .10886978   .4581585    -.07219241
2013   7146   -.8784832   .12008923   .22521234 . 0 1 0 .   -.04209113   -.1451455   .007803947 -.16799736   -.029150855
2010   6375   1.0389624  -.10455126   -1.728463 1 0 0 0 0     .0983619   -.3164702    .03141305   1.109313     .56998026
2009  66016   -.7760103   .04819685    .8630474 1 0 0 0 0    -.1789611    .3179875   -.04880327 -1.0388756    -.13619408
2007 144435   2.3733892   .54324657   1.0815662 1 0 0 0 0   -.10995477   .06666309  -.007635355   .6130295      .8382236
2004   1722    .1779779   .14659788     .259101 . 0 0 0 .   -.05211303    .3536803   -.04968844   .3390703     .05034481
2014   5071    .8618653   -.3313862  -.45152885 1 0 1 0 1    .05782455   -.1570753   -.01665309   .9944639    -.13128573
2015   5071  -.58043283   .08281563   .19255076 1 0 1 0 1   .009456545  -.17346604    .00433363  1.0640192   -.024917094
2009 142953    4.823379  -1.0167964   -2.263422 . 0 0 0 .   -.04700428   .18904576  -.013694722    1.87751     -.1081434
2003   6375    .3449812   -.5663903  -1.7900246 1 0 0 0 0     .1444354  -.28723982  .0009216666   .8615055     .17977592
2005  20338   -1.433635   .23219413    .6211026 0 1 0 0 0   -.02522695  .069574445   -.04138167 -1.8945732   -.007753203
2011   7146  -1.2272536   .21372065    .3633187 . 0 1 0 .  -.018782526    .3811545    .04539609 .034446716     .05645994
2013  66016    -.481824   .09958082   .34628385 1 0 1 0 1     .0492405    .1137682  -.015081085   -.743556    .031854335
2015 163983   -.9330289    .1222281   .27316338 0 1 1 1 0   .014352083    .2431268   -.04350419 -1.3404846    .003842002
2003   3138  -1.0728301    .1491575    .2985037 1 0 0 0 0    .26993334   -.2699734   -.05341553 -2.3688588    .015960941
2013   3138  -1.4982126   .22132698    .4197696 1 0 1 0 1    .07182199  -.07621217   -.06433397 -2.3688588     .01503241
2007   6375    1.403365   -.6208221  -2.3046465 1 0 0 0 0    .02128902  -.26276883    .04108669   .9840107      .1816351
2010   3138   -1.514615   .22115454    .4302421 1 0 0 0 0    .12620062  -.18152496   -.05182426 -2.3688588     .01162897
2012  66016   -.9249421    .1148439   .23732775 1 0 1 0 1    .02239153   .06645611   .009054802  -.4833498    -.01477541
2002   4809   -1.466391   .21207374    .3986382 1 0 0 0 0   -.10204548    .6393586   -.14204419  -2.261827    .009297717
2012   7146   -.7373758   .10935561    .2261575 . 0 1 0 .   -.09884118  -.22782677   .028783344  .06102753   -.031434696
2012 180833  -1.1367524   .09710814   .16750085 1 0 1 0 1    .18159133    -.423159    .10886978   .5055771    -.07070819
2009   2435   -.6444438   .09677543     .219849 . 0 0 0 .    -.1670099   -.2335045    .06762083   .3303833    -.04555846
2016  66016   -.7949565   .10771704    .2439881 1 0 1 0 1  -.023767173 -.005948275   .025188833  -.4557276    -.02594327
2009  10793    .9015601   .11660357    .2754746 0 1 0 0 0   -.00259012   .46129265   -.11098873 -.25767517   -.029970646
2007   2710   -.7016325   .12001009   .24744987 0 1 0 0 0    .19627336   .28013387   -.12684333  -.6107912   -.014354423
2013  62655   -.5664123   .15681267    .2084759 . 0 1 0 .    .04887241    .0794129  -.028686445 -1.8816404     .04118545
2009   9774   1.2705243    .2333047    .4264712 . 0 0 0 .    .06140295    .4306932   -.07566625  -.6807156      .0229408
2014   2663   -.1749356 .0038176775 -.036435425 1 0 1 0 1  -.011945784  -.18164924    .01913097  .04573917     .09117487
2015   3505  -1.2461407   .04657549   .18798438 1 0 1 0 1   -.07866263    .1013929    -.0475389   .2928934    -.02156809
2009   3144   -.4401772   -.7597789  -1.2649486 . 0 0 0 .   -.21322967   -.2662194      .106827  2.6230116    -.06099894
2005   3144    -.650002   -.6261171   -1.042334 . 0 0 0 .     -.214898   -.2162974    .09006868   2.611744     -.1543398
2002   2435           .           .           . . 0 0 0 .  -.027736574  -.19309846   -.14204419 -.19188786             .
2012   3505    -.981407  .029847905   .19623047 1 0 1 0 1    -.0747996    .6012578  -.035905086 -.03558922    -.04627528
2016   2710   -.6450307  -.06000477   .14500278 0 1 1 1 0    .07131219  -.06642078    .02008979   .7725134    .016402211
2005   2435   -.9606452   .12031393    .2303767 . 0 0 0 .   -.12901816  -.21625085    .08508142    .263546    -.05317856
2007  66016   -.9909706   .18789802    .4673594 1 0 0 0 0   -.09889755    .2099293   .012517449 -1.0437155     .05662382
2009   2710   -.8668887   .12526816   .26972073 0 1 0 0 0    .08769268    .3156319   -.04923168  -.6088591    .003017541
2015  20338  -1.1131009   .16165927    .3248849 . 0 1 0 .     .2127148   .22524476   -.06827979 -2.3688588   -.006751105
2010 160163   -1.991752   .29392067    .7320628 . 0 0 0 .    .26993334   -.5351758   -.14204419 -2.3688588     .04711248
2014 180833   -.9098877    .0946689   .14500786 1 0 1 0 1    .10968697  -.27747533    .10886978   .4919834    -.06882714
2015 179700  -1.1999992 -.035416216    -.264763 1 0 1 0 1   .008563966   -.1803596    .01940299   .3031492    -.02828071
2004  62655   2.2606955     .199675   -.1164384 0 1 0 0 0    .15653814   .18990925   -.03766808   -.458807 -.00028635561
2010   3144  -.27918363   -.6030802    -.941754 . 0 0 0 .   -.12362257  -.22636005    .10886978  2.6230116      .2812666
2012   2435   -.8729183    .1120367    .2061194 . 0 1 0 .  -.010947406   -.3165051     .0985324   .6270685    -.06201785
2008   1408   3.0202446   -.4612848  -.53169274 1 0 0 0 0    .07974762    .1874525  -.022953764   .2502184     -.8367664
2011  20338    -.327581   .05961342   .24254395 . 0 1 0 .    .12835401    1.073942   -.03967463 -2.3588223      .0356455
2012  29942   -.8010333   .14783719    .4046384 1 0 1 0 1     .1314069 -.014515072   -.06226857  -.6946487   -.019601997
end
*reghdfe installed from SSC