Hello,
for my thesis I'm doing an IV regression of the effect of executive compensation on company innovation, with panel data.
My instrument for compensation is "predfirst" which is an dummy variable that is 1 if that year is predicted to be a first year of a new compensation cycle and 0 if it is not predicted to be a first year of the cycle and the dependent variable innovation is "xrd_w" which are the R&D costs.
I cluster for gvkey, but my supervisor told me I should also absorb year fixed effects and industry fixed effects.
However, this comes with the problem that my constant drops out. Which resulted in this:
. ivreghdfe xrd_w predfirst if hitech==1, cluster(gvkey) absorb(fyear sic)
(MWFE estimator converged in 4 iterations)
OLS estimation
--------------
Estimates efficient for homoskedasticity only
Statistics robust to heteroskedasticity and clustering on gvkey
Number of clusters (gvkey) = 343 Number of obs = 17246
F( 1, 342) = 0.27
Prob > F = 0.6059
Total (centered) SS = 5.40071e+10 Centered R2 = 0.0001
Total (uncentered) SS = 5.40071e+10 Uncentered R2 = 0.0001
Residual SS = 5.40021e+10 Root MSE = 1771
------------------------------------------------------------------------------
| Robust
xrd_w | Coef. Std. Err. t P>|t| [95% Conf. Interval]
-------------+----------------------------------------------------------------
predfirst | 87.91036 170.2476 0.52 0.606 -246.9538 422.7745
------------------------------------------------------------------------------
Included instruments: predfirst
Partialled-out: _cons
nb: total SS, model F and R2s are after partialling-out;
any small-sample adjustments include partialled-out
variables in regressor count K
------------------------------------------------------------------------------
Absorbed degrees of freedom:
-----------------------------------------------------+
Absorbed FE | Categories - Redundant = Num. Coefs |
-------------+---------------------------------------|
fyear | 15 0 15 |
sic | 15 1 14 |
-----------------------------------------------------+
I really don't understand what is happening. Anyone who could help me out?
Would really appreciate it.
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