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For my thesis I examine the effect of producing renewable energy on firms in the energy sector. In this, I want to compare the effect of the independent variable Renewable Generation between period 1 (2002-2010) and period 2 (2011-2018). My dependent var is a firms' equity beta and a control variable is firm size. How can I best formulate the appropriate model?

I thought about this, but I am not that skilled in statistics and therefore I have doubts:

Beta = b0 + b1ReGenperiod1 + b2ReGenperiod2 + b3Firmsizeperiod1 + b4Firmsizeperiod2 + error

I have also tried to just have ReGen instead of ReGen*period1, separate regressions for each period and to have my control variable as just firm size without the period interaction, but all models yield different answers. Can someone help me understand this and point me in the right direction for the appropriate model?

(I hope I don't break some rules with this question.)

Thanks in advance!

Yours sincerely,

Julian

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  • $\begingroup$ Welcome! Do you observe the same firms in each time period? $\endgroup$ – Thomas Bilach Apr 10 at 16:04
  • $\begingroup$ Hi @ThomasBilach, I am using an unbalanced dataset because not a lot of firms have data on renewable energy for each year, but yes these are the same firms! Someone recommended me to use: beta = b0 + b1ReGen + b2Period (0 if 2002-2010 and 1 if 2011-2018) + b3ReGen*Period + b4Firmsize + error. This seems like a good idea. What do you think? $\endgroup$ – Julian N Apr 12 at 12:45
  • $\begingroup$ It’s a good start! Is “ReGen” a continuous variable? Or, does it represent a dummy variable for treated firms? $\endgroup$ – Thomas Bilach Apr 12 at 14:02
  • $\begingroup$ It is a continuous variable that measures the renewable energy production in GigaJoule! The period variable is a dummy. $\endgroup$ – Julian N Apr 13 at 16:19
  • $\begingroup$ Is your data stacked? I have no problem with this formulation. What is the renewable energy production in the pre-period? Was there a policy introduced that changed the trend in your outcome? If you’re up for it, I would share your output as it’s easier to point you in the right direction. $\endgroup$ – Thomas Bilach Apr 29 at 2:36

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