Fang
Can anyone help me understand this sentence? We control for time invariant unobservable firm characteristics by including firm fixed effects, Firm.CONTEXT: To examine the effect of M&A on a firm’s innovation output, we estimate the following empirical model in our baseline OLS regressions: Ln(Innovationi,t+n)= α+β×Ln(MA/Assets)i,t+δZi,t+Yeart+Firmi+ui,t where i indexes firms, t indexes time, and n is equal to zero, one, and two. Ln(Innovation) is the dependent variable and can be one of the following two measures: the natural logarithm of the number of patents filed by the firm, Ln(Pat), and the natural logarithm of the number of non-self citations per patent, Ln(Cites/Pat). Z is a vector of firm and industry characteristics that may affect a firm’s innovation productivity discussed in Section 2.3. Year captures fiscal year fixed effects. We control for time invariant unobservable firm characteristics by including firm fixed effects, Firm. Heteroskedasticity-robust standard errors are clustered at the firm level as suggested by Petersen (2009).4
Mar 14, 2014 12:36 PM
Answers · 5
There must be a slight error because that last part ", Firm." doesn't make any sense. The earlier part of the sentence means that there were some firm characteristics in the situation which were unobservable (could not be measured) and time invariant (did not increase or decrease over time), and that the authors tried to handle these unknown and unmeasurable characteristics by including firm fixed effects. My guess is that they are talking about characteristics such as quality of workers, which would be unobservable but would not change over time, and they are claiming that their model handles these kinds of characteristics by including the fixed effects factor.
March 14, 2014
It doesn't make any sense to me.
March 14, 2014
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Fang
Language Skills
Chinese (Mandarin), English, German
Learning Language
English, German