interpreting dummy variable in Heckman 2SLS

klndsy — Sat, 18 Feb 2017 19:02:47 GMT

**I APOLIGIZE FOR DOUBLE POSTING THIS QUESTION,** but I am getting no bites on the other board. My question is regarding interpreting the output of a Heckman 2SLS.

Background information: I am exploring how institutional investor presence affects investments and firm performance during recessions. Yet, there is a bit of a selection issue because institutions may choose to invest in firms which have certain investment strategies or performances. And so, I employ the Heckman 2SLS model.

My code is:

proc qlim data = data heckit;

model dumhi = dumsp500 capx q lnat salesgrowth lev / discrete; *selection equation;

model capx q liq salesgrowth vol rec / select(dumhi=1); *equation of interest;

run;

In an OLS or fixed effects model, I would estimate the model:

capx = dumhi rec rec*dumhi q liq salesgrowth vol

where the coefficient on the interaction term is the coefficient of interest.

And now my question:

In the second stage of Heckman 2SLS where the inverse mills ratio of my institutional investor equation is included in the estimation of investments, I cannot figure out how to include the institutional investor-recessionary interaction term due to a linearity issue.

I did include "rec" already -- is this basically the same thing as the interaction variable? I ask this because when we set up the second equation, we are imposing institutional investors = 1. No?

So, does "rec" in the Heckman model essentially tell me the same thing as "rec*dumhi' in OLS model since we are imposing dumhi=1 in the selection criteria? Or am I not clear in my understanding of the model???

Any help or thoughts is appreciated.

Re: interpreting dummy variable in Heckman 2SLS

Reeza — Sat, 18 Feb 2017 22:25:18 GMT

It's a statistical methodology question, you should probably post on CrossValidated (stats.stackexchange.com) as well.

There are several very smart statisticians on here, but the statistical questions have a longer response time.

I'm going to move this to statisical procedure forum though it rarely affects response time.

Re: interpreting dummy variable in Heckman 2SLS

klndsy — Sat, 18 Feb 2017 22:33:44 GMT

Thank you for the direction, Reeza!!!

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interpreting dummy variable in Heckman 2SLS

Re: interpreting dummy variable in Heckman 2SLS

Re: interpreting dummy variable in Heckman 2SLS