Too many interaction terms?

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Lauw
Posts: 10
Joined: Mon Aug 27, 2012 5:27 am

Too many interaction terms?

Postby Lauw » Tue Oct 02, 2012 7:53 am

I'm using a panel data regression to see effects of return on assets on CEO remuneration. Furthermore i've added variables such as board size and board independency. I've also added interaction terms board size*ROA and board independency*ROA, but once i start adding those, ROA falls from significant positive to significant negative. Intuitively, negative ROA-remuneration relation would make little sense. Fixed or random effects change nothing. Is there any way past this besides delete interaction terms?

startz
Non-normality and collinearity are NOT problems!
Posts: 3798
Joined: Wed Sep 17, 2008 2:25 pm

Re: Too many interaction terms?

Postby startz » Tue Oct 02, 2012 10:06 am

Think carefully about what your estimates imply for the partial derivative of remuneration with respect to ROA.

Lauw
Posts: 10
Joined: Mon Aug 27, 2012 5:27 am

Re: Too many interaction terms?

Postby Lauw » Wed Oct 03, 2012 4:54 am

3 ROA terms?

Lauw
Posts: 10
Joined: Mon Aug 27, 2012 5:27 am

Re: Too many interaction terms?

Postby Lauw » Wed Oct 03, 2012 8:26 am

Any way i can get past this then?

startz
Non-normality and collinearity are NOT problems!
Posts: 3798
Joined: Wed Sep 17, 2008 2:25 pm

Re: Too many interaction terms?

Postby startz » Wed Oct 03, 2012 8:37 am

Did you look at the estimated partial derivatives?

Lauw
Posts: 10
Joined: Mon Aug 27, 2012 5:27 am

Re: Too many interaction terms?

Postby Lauw » Thu Oct 04, 2012 5:23 am

How would i do this?

Lauw
Posts: 10
Joined: Mon Aug 27, 2012 5:27 am

Re: Too many interaction terms?

Postby Lauw » Sun Oct 07, 2012 6:12 am

Anybody? I'm pretty stuck.


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