1
$\begingroup$

I have panel data on firms in 3 countries (e.g., 100 firms in 3 countries in 5 years, and event happen at the 3rd year in all countries at the same time). For an example, for each firms I have 4 variables, including:

y x1 x2 profitability

(while y is dependent variable and the rest are independent variables). I am examining the impact of a law on y by using differences-in-differences. There is a theory that suggests that the law has more impact on firms' with high profitability. Therefore, I want to test the impact of laws on a sample of firms with high profitability. However, each firms has 5 profiatbility (given my sample period is 5). So is there any conventional way or widely-used approach to getting a high-profitability subsample in such a case?

$\endgroup$

1 Answer 1

1
$\begingroup$

There isn't any single way of how to do it. A reasonable way is to calculate average profitability over these 5 periods, ordering firms from most to least profitable and then making the sub-sample from the top 20% or 25% or $x%$ depending on what you believe is reasonable.

$\endgroup$
2
  • $\begingroup$ This make senses somehow to me, I am wondering if is there any reference to it? $\endgroup$ Jan 9, 2023 at 17:41
  • 1
    $\begingroup$ @PhilNguyen no reference, it is just a reasonable thing to do. $\endgroup$
    – WilliamT
    Jan 9, 2023 at 17:42

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge you have read our privacy policy.

Not the answer you're looking for? Browse other questions tagged or ask your own question.