Fixed or Random effect in Panel Data Analysis?

[mesnakesnake]

Dear all,


I am running panel data analysis and facing some difficulties. My goal is to find out drivers of firms' decision on leverage. I am using Eviews software for my analysis.

My data has 9 years timespan with yearly frequency and consists of 75 companies, represented by 23 industries.
My dependent variables are: long-term debt, short-term debt.

Independent variables: profitability(x1), size(x2), tangibility(x3), liquidity(x4), non-debt tax shield(x5) median industry leverage(x6). All my variables are appropriately transformed.

I estimated Y C X1 X2 X3 X4 X5 X6 random effect equation (as suggested by Hausman test) and got satisfying result. Next, I decided to include dummy variables (k-1) for each industry to control individual intercept and find out effect of each industry.

The problem is that after introduction of dummy variables I can no more estimate an equation as Eviews gives me 'Near singular matrix'. I dropped variable X6 and managed to estimate pooled regression. However, random effect regression can no longer be estimated as 'there are not enough cross-sections'. From now on Eviews allows just for fixed effect regression.

After introduction of dummy variables, Eviews also does not let me to conduct Heteroscedasticity and Hausman tests.


Thank you for dedicating your time to read this question. Any help is appreciated.