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Hi All,

my name is Intan. I am a newcomer to Eviews...
Currently i am doing a thesis to study the determinants of capital structure across 172 companies (from 8 industries) for period 2000-2011..
I want to see the effect of different industry classification on debt ratio, hence i create 7 dummy variables (DM1...DM7)..
my estimation model look like this:
LTD_RATIO C TANG PROF SIZE GROWTH BRISK NDTS INF_RATE GDP_RATE STOCK_MARKET_SIZE DM1 DM2 DM3 DM4 DM5 DM6 DM7

however, when i tried to estimate the fixed effect model using those equation, i failed and got an error message "Near Singular Matrix"
i suspect it is because of multicollinearity problem with my data, but i just couldnt find out why..is it because i have too many dummy variables?

can someone enlighten me on what the problem is with my data and how to correct it?
attach is my workfile..

thanks in advance..

If it fails without fixed effects, you've fallen in to the dummy variable trap.

hi gareth,

it runs OK with OLS..
but it gives me the "near singular matrix" when i tried the cross-section fixed effect...

i need to account for the industry effect, hence i include the 7 dummy variable (for 8 industries)..
how can i get thru this dummy variable trap while still using my 7 Dummy for cross-section fixed effect option?
btw, it doesnt show "near singular amtrix" error when i try period fixed effect option...

why it give different response between period and cross-section fixed effect?
in my model, which one is more appropriate? period or cross-section effect? i have those 7 industry dummies that dont vary with year...also, i have GDP and INF variables that dont vary across the 172 companies...

The dummies plus constant are probably perfectly collinear with the cross-section fixed effects.

Good day. I have problem with "near singular matrix" too. I want to make Chow Test (i want to know RSS for EQ with dummy = 1 and dummy = 0), but when I make an equtation and write in sample "collbarg = 0" ( collbarg is a dummy, 0 or 1), it tells me "near singular matrix". What can I do to improve the situation?

You probably have some variable that is a constant when collbarg equals zero.