I have a dependent variable, credit rating, and it is a limited dependent variable. Independent variables are profitability, firm size, stock return, etc.
I was advised to use Stata and run regression with fixed effects and then
predict yhat in order to obtain a target rating that a certain firm wants to target in this way:
xtreg dependent independent, fe with regression equation below:
Credit rating = $\alpha + \beta_1$R&D $+\beta_2$Size $+\beta_3$Selling Expense $+\beta_4$Market to Book $+\beta_5$Profitability $+\beta_6$Operating Risk $+\beta_7$Tangibility + error term
predict yhat in order to get a proxy for the credit rating a certain firm wants to target.
The dependent variable credit rating is limited, so is the panel regression for the model:
xtreg, fe oK, or should an ordered probit model be used instead? (In other studies with credit ratings they use ordered probit.)
And if a probit model should be used, what command is the corresponding command
predict yhat (in the case of
xtreg fe) for the ordered probit model? Or in other words, how do I get the rating that a firm wants to target (from the panel regression with
xtreg, fe and then
predict yhat for the fitted values) from the ordered probit model?