Hello,

I am supposed to use a difference and difference model to estimate the effect of mergers on the growth in R&D expenditures. I will be logging the R&D expenditures. I will also be using logSales as an independent variable. Then I need to follow the difference and difference model to create the interaction term between the treatment group and the firm type. The treatment in this case is a merger with a 1 used for each year when the firm merged. The firm type is a 1 for the firms that engaged in a merger and a 0 for the firms that did not merge during the time period of the study.

However, I am confused how to create the treatment variable.

My stata command comes out like this:

xtreg logR&D firmtype logSales

But I do not know how to make the Treatment variable for the treatment group. Then after that I need to make an interaction term between Treatment and firmtype.