I want to perform regressions.



For one of the regressions, the independent variable is binary (0,1) with excessive zeros.
For another regression, the independent variable is the absolute value of something (so all my values will be positive).

The independent and control variables are binary and continuous.

I was wondering whether you are familiar with doing such regressions (maybe zero inflated models, or logistic, poisson, tobit, ... you might know what is more fitting).

So basically each company has a financial goal and a social goal. To set the financial goal for the year t, we have two things we look at : the history of our financial performance (this is the historical aspiration of the financial goal) and how other companies in the same industry are performing (this is the social aspiration of the financial goal).

D.V. Accounting Fraud: “Following Liu (2016), we construct an accounting fraud dummy that is equal to one if the
firm has experienced one of the following events in a given year, and zero otherwise. First,
the firm is subject to class action lawsuits in a given year. We identify 216 lawsuit events in
our sample using data from the Securities Class Action Clearinghouse (SCAC) Website. SCAC
is widely used in corporate misconduct literature to capture firm-level fraud (e.g., Dyck et
al., 2010; and Wang et al., 2010). Second, earnings are misstated in that firm year. We use
the SEC’s Accounting and Auditing Enforcement Releases 10b-5 (AAER) to identify
misstatement. AAER consists of firm misstatement events.”
And I added to them an event which is Accounting Controversies: Is the company under the
spotlight of the media because of a controversy linked to aggressive or non-transparent
accounting issues? I got this from REFINITIV database.
So basically, if the company has experienced at least one of the three events above then, I put
1 in the sample, if not, then 0.
So if in AAER, SCAC, and/or REFINITIV databases they say that there is fraud, then the value is 1 if neither says that there is fraud then it's 0

So basically each company has a financial goal and a social goal. To set the financial goal for the year t, we have two things we look at : the history of our financial performance (this is the historical aspiration of the financial goal) and how other companies in the same industry are performing (this is the social aspiration of the financial goal).
To set the social goal for the year t, we have two things we look at : the history of our performance on the social goal (this is the historical aspiration of the social goal) and how other companies in the same industry are performing (this is the social aspiration of the social goal).
So the financial goal has a historical aspiration and social aspiration
and the social goal has a historical aspiration and a social aspiration
We will need to run 5 regressions (4 of them are the same but you just change the I.V. and the 5th one I have to talk to you about)
For the first 4, I will do Accounting Fraud vs Whether we attained the aspiration
i.e.
1) accounting fraud vs whether we attained the historical aspiration for the financial goal ; 2) accounting fraud vs whether we attained the social aspiration for the financial goal ; 3) accounting fraud vs whether we attained the historical aspiration for the social goal ; 4) accounting fraud vs whether we attained the social aspiration for the social goal
for these, I have provided you in the sample with accounting fraud
and for whether we attained these aspirations or not (also binary ; 0 if we haven't and 1 if we have)
so these will be easy
now for the 5th (might be single one or two based on what you think is reasonable because i don't know how to do it and i need your input):
I want to see whether the attainment of both social aspirations (for social goal and for financial goal) or the unattainment of both social aspirations (for social goal and ginancial goal) or the attainment of either of both social aspirations (for social or financial goal) affects the likelihood of accounting fraud
and then I want to see whether the attainment of both historical aspirations (for social goal and for financial goal) or the unattainment of both historical aspirations (for social goal and ginancial goal) or the attainment of either of both historical aspirations (for social or financial goal) affects the likelihood of accounting fraud
how (un)Attainment of social aspiration for financial goal affects likelihood of accounting fraud
how (un)Attainment of hisotircal aspiration for financial goal affects likelihood of accounting fraud
how (un)Attainment of social aspiration for social goal affects likelihood of accounting fraud
how (un)Attainment of historical aspiration for social goal affects likelihood of accounting fraud
you have the accounting fraud variable as 0 or 1
and you have (un)attainment also as 0 or 1
for each of these 4 cases
this is straightforward if you decide on the type of regression (poisson or logistic of whatever depending on the dependent variable which has excessive zeros)
now the other part is not straightforward
For historical aspirations: If we attain the historical aspriation of the financial goal and we attain the historical aspiration of the social goal, how does this affect likelihood of accounting fraud? If we attain the historical aspriation of the financial goal and we do NOT attain the historical aspiration of the social goal, how does this affect likelihood of accounting fraud? If we do NOT attain the historical aspriation of the financial goal and we attain the historical aspiration of the social goal, how does this affect likelihood of accounting fraud? If we DO NOT attain neither historical aspiration for social goal nor historical aspiration for financial goal, how does this affect likelihood of accounting fraud
Lastly, for social aspirations: If we attain the social aspriation of the financial goal and we attain the social aspiration of the social goal, how does this affect likelihood of accounting fraud? If we attain the social aspriation of the financial goal and we do NOT attain the social aspiration of the social goal, how does this affect likelihood of accounting fraud? If we do NOT attain the social aspriation of the financial goal and we attain the social aspiration of the social goal, how does this affect likelihood of accounting fraud? If we DO NOT attain neither social aspiration for social goal norsocial aspiration for financial goal, how does this affect likelihood of accounting fraud ?
you get where we are going?
We need to control for temporal effects ( I have a variable for year 2017 which is binary, for year 2018 which is binary , .... until year 2021)
We need to control for industry effects ( I have columns for each industry and also 0 or 1 is the company is in this industry or not)


We have to control for risk : I have calculated two variables for this: systematic risk and nonsystematic risk (they are in the sample already)
CEO tenure (continunous) , CEO duality (binary) , CEO age (number) , CEO gender (binary)
Firm Size (continuous)
Board Independence: these are two scores also found in the sample
and slack (also avariable in the sample)
you have everything you need int he sample
I have done all calcualtions
for the first 4 regressions, they must be easy
Now my financial goal is ROA (Return on Asset)
There are two ways to calculate ROA
either NI at time t / Assets of the company at time t OR NI at time t / (Assets of the company at time t + Assets of the company at time t - 1 )
this you don;t really care about
I am explaining it to you to understand the following columns:
ROA-AVG-SAMPLE is the ROA when calculated using the first method
i mean second method
and ROA-T-SAMPLE is when ROA is calculated using first method
why did I do this ? because in previous works, some use this and some use that - so i think it's better if we do regressions using this and then regressions using that and we see which gives better results
you can see they are very close
but in general ROA is our financial goal - you can call them ROA-Method1 and ROA-Method2 if it's easier for you to understand (Rather than AVG-SAMPLE and T-SAMPLE)you will not use both ; you will use one of them (the one that gives better performance in rgeressions)
Now, if we calculate ROA in method 1: FIN-Diff-HA-AVG-dummy is the (un)attainment of the historical aspiration for the financial goal (ROA calculated using method 1)
it is 0 if we didn't attain the hisotrical aspiration for the financial goal (ROA calculated using method 1) and it is 1 if we attained or exceeded the historical aspiration for the financial goal (ROA calculated using method 1)
Now, if we calculate ROA in method 1: FIN-Diff-HA-T-Dummy is the (un)attainment of the historical aspiration for the financial goal (ROA calculated using method 2)
it is 0 if we didn't attain the hisotrical aspiration for the financial goal (ROA calculated using method 2) and it is 1 if we attained or exceeded the historical aspiration for the financial goal (ROA calculated using method 2)
Now, if we calculate ROA in method 1: FIN-SA-Diff-AVG-Dummy is the (un)attainment of the social aspiration for the financial goal (ROA calculated using method 1) : it is 0 if we didn't attain the social aspiration for the financial goal (ROA calculated using method 1) and it is 1 if we attained or exceeded the social aspiration for the financial goal (ROA calculated using method 1)
Now, if we calculate ROA in method 2: FIN-SA-Diffl-T-Dummy is the (un)attainment of the social aspiration for the financial goal (ROA calculated using method 2) : it is 0 if we didn't attain the social aspiration for the financial goal (ROA calculated using method 2) and it is 1 if we attained or exceeded the social aspiration for the financial goal (ROA calculated using method 2)
So basically, when we assume that our financial goal is ROA calculated using method 1 : we will use FIN-Diff-HA-AVG-dummy as wether or not we attained the historical aspiration for the financial goal and FIN-SA-Diff-AVG-Dummy as whether or not we attained the social aspiration for the financial goal


and if we calculated our financial goal ROA using method 2: we will use FIN-Diff-HA-T-Dummy as wether or not we attained the historical aspiration for the financial goal and FIN-SA-Diffl-T-Dummy as whether or not we attained the social aspiration for the financial goal
this is in summary
disregard DA and Absolute DA for now I will explain them later
let's move to: EXTRACTIVE PROCESSING EQPT-MANUFACTURING ELECTRICAL-AND-ELECTRONICS TEXTILES-AND-APPAREL CONSUMABLES OTHER-MANUFACTURING TRADE
there are the industry variables and they capture the industry effect
they are used as control variables
so as you can see for example for the first company the values are 1 for TRADE and 0 elsewhere because the company is in the TRADE industry
For the second company, the values are 1 for PROCESSING and 0 elsewhere because the company is in PROCESSING industry
we include these in the regression to see if for example for this specific industry, the probability of fraud is higher you know?

Debt-to-Equity is another control variable. The measure represents the ability of a firm to secure resources with the use of debt financing.
if you want to rename it you can call it Potential-Slack but up to you
Ticker is another identifier for the company (like CUSIP) so use whichever you want when you want to tell python that this is a panel data

the variables: Year_2016 Year_2017 Year_2018 Year_2019 Year_2020 Year_2021 are to study temporal effects
I don't know if this is a standard thing to do when we have panel data
but for me, i thought maybe we should add them to see if for a certain year, we have more fraud

Another control is Duality (it is 1 if the CEO is the chairman of the board at the same time) and 0 if not
Disregard: CEO-Salary ($) CEO-Bonus ($) CEO-Non-Equity Incentive Plan Compensation ($) CEO-All Other Compensation ($) CEO-Shares Owned - As Reported CEO-Shares Owned - Options Excluded CEO-Percentage of Total Shares Owned - Options Excluded CEO-Number of Shares Acquired on Option Exercise CEO-Value Realized on Option Exercise ($) CEO-Number of Shares Acquired on Vesting CEO-Value Realized on Vesting ($) for now
and then we move to CEO-Age we need to control for this : it is the age of the CEO
ignore: CEO-Unexercised Exercisable Options CEO-Estimated Value of In-the-Money Unexercised Exercisable Options ($)
control variable: Tenure it is how many years the ceo has been ceo
and another control variable is CEO-Gender-Dummy it is 0 if male and 1 if female - you might have some blank values - i don't know how yu need to deal with these - you know better
Size-AssetsLog and Size-Employees(Log) are measures for the size of the firm ; I will need only 1 in my regressions . Try both and keep the one that is more fitting (but the same for all regressions so if you decide on Size-AssetsLog then it will be the same for all regressions) I think it's better to use the assets one rather than the employees one
I also control for the board of directors: Please use the following variables from the sample
o “Audit-Committee-Independence-Score”: Score of independent board members on the audit committee as stipulated by the company.
o “Independent-Board-Members”: it is the percentage of independent board
members as reported by the company.
disregard: Audit-Committee-Independence , Audit-Committee-Mgt-Independence-Score, Audit-Committee-Mgt-Independence , Audit-Committee-NonExecutive-Members, Audit-Committee-Expertise, Corporate-Governance-Board-Committee, Strictly-Independent-Board-Members, and Strictly-Independent-Board-Members
Now column BE is Social-Score it is the performance on the Social Goal
remember how ROA was the financial goal ?
Social Score is the social score
i told you there is a financial goal (with hsitorical and social aspiration) and a social goal (with historical and social aspiration)
so now we are at the social goal
which is social score
Social-Score is the performance on that goal
disregard column BF (earnings-restatement) and BG (Social-Average)
Dummy-SA-Social-Score is the (un)attainment of the social aspiration of the social goal : 0 if we didn't attain the social aspiration of the social goal and 1 is we did or we exceeded
SCAC-AAER-REFINITIV is the measure for accounting fraud (0 or 1 with excessive zeros)
we need to control for risk and we have 2 variables for that: Systematic-Risk-Final and Non-Systematic-Risk
Label-Social-HA-Dummy is the (un)attainment of the historical aspiration of the social goal : 0 if we didn't attain the hisotircal aspiration of the social goal and 1 is we did or we exceeded
as i told you the dependent variable is accounting fraud
which is the variable: SCAC-AAER-REFINITIV (you can rename it if it's easier for you)
as you can see it is 0 or 1 but excessive 0s
this is why i asked you at the beginning what we can do with that
I don't know if you can try the zero inflated poisson, the logistic regression, I also came across the Zero-Inflated Logistic Regression (designed for binary
outcomes with excess zeros and incorporates a two-process mechanism,
distinguishing between the process determining the likelihood of observing
a zero and the process for non-zero outcomes)
this is something i don't know how to deal with and you said we can try several things and see which gives better performance so yeah
this is the dependent variable
Again for the social goal : the (un)attainment of social aspiration for social goal the variable is Dummy-SA-Social-Score and the (un)attaiment of historical aspiration for social goal the variable is Label-Social-HA-Dummy
And for the financial goal: IF WE ARE USING METHOD 1 , the (un)attainment of social aspiration for financial goal the variable is FIN-SA-Diff-AVG-Dummy and the (un)attaiment of historical aspiration for financial goal the variable is FIN-Diff-HA-AVG-dummy
And for the financial goal: IF WE ARE USING METHOD 2 , the (un)attainment of social aspiration for financial goal the variable is FIN-SA-Diffl-T-Dummy and the (un)attaiment of historical aspiration for financial goal the variable is FIN-Diff-HA-T-Dummy
these are our independent variables
for the different regressions
and for your trial of interaction effects
Industry Variables:
EXTRACTIVE, PROCESSING, EQPT-MANUFACTURING, ELECTRICAL-AND-ELECTRONICS, TEXTILES-AND-APPAREL, CONSUMABLES, OTHER-MANUFACTURING, TRADE: Industry indicators. there are alone and debt-to-equity is a variable alone it is not an industry variable
Temporal Effects:
Year_2016 to Year_2021: Dummy variables to study temporal effects. these are alone
Size-AssetsLog: Logarithm of firm size based on assets. NO it is the logarithm of assets and it is a measure of firm size
Size-Employees(Log): Logarithm of firm size based on employees. NO it is the logarithm of number of employees and it is a measure also for firm size
Audit Committee Variables:
Audit-Committee-Independence, Audit-Committee-Mgt-Independence-Score, Audit-Committee-Mgt-Independence, Audit-Committee-NonExecutive-Members, Audit-Committee-Expertise, Audit-Committee-Independence-Score, Corporate-Governance-Board-Committee, Independent-Board-Members, Strictly-Independent-Board-Members. YOU DON'T NEED ALL OF THESE YOU ONLY NEED TWO: Audit-Committee-Independence-Score AND Independent-Board-Members
So basically, the idea is ... think with me ... if the CEO has a financial goal and a social goal , the CEO is more likely to do accounting fraud
so we need a way to show this
but we cannot mix historical aspiration and social aspiration
so we do historical aspiration alone
and social aspiration alone
pay attention when we say social aspiration it is different from social goal hahaha
the financial goal has a social aspiration
and the social goal has a social aspiration
as we mentioned earlier
THIS IS A VERY IMPORTANT PART IN THE PAPER (I MENTIONED IT EARLIER): "For historical aspirations: If we attain the historical aspriation of the financial goal and we attain the historical aspiration of the social goal, how does this affect likelihood of accounting fraud? If we attain the historical aspriation of the financial goal and we do NOT attain the historical aspiration of the social goal, how does this affect likelihood of accounting fraud? If we do NOT attain the historical aspriation of the financial goal and we attain the historical aspiration of the social goal, how does this affect likelihood of accounting fraud? If we DO NOT attain neither historical aspiration for social goal nor historical aspiration for financial goal, how does this affect likelihood of accounting fraud
Lastly, for social aspirations: If we attain the social aspriation of the financial goal and we attain the social aspiration of the social goal, how does this affect likelihood of accounting fraud? If we attain the social aspriation of the financial goal and we do NOT attain the social aspiration of the social goal, how does this affect likelihood of accounting fraud? If we do NOT attain the social aspriation of the financial goal and we attain the social aspiration of the social goal, how does this affect likelihood of accounting fraud? If we DO NOT attain neither social aspiration for social goal norsocial aspiration for financial goal, how does this affect likelihood of accounting fraud ?"
the control variables I might add 1 more variable
I am working on now
I need to send it to you ASAP
but you can start working
and when i continue calculating it
you just add it to the regressions
So for now you can start with accounting fraud vs historical aspiration for financial goal ; accounting fraud vs social aspiration for financial goal ; accounting fraud vs historical aspiration for social goal ; accounting fraud vs social aspiration for social goal
but these are important
but not as important as these:
"For historical aspirations: If we attain the historical aspriation of the financial goal and we attain the historical aspiration of the social goal, how does this affect likelihood of accounting fraud? If we attain the historical aspriation of the financial goal and we do NOT attain the historical aspiration of the social goal, how does this affect likelihood of accounting fraud? If we do NOT attain the historical aspriation of the financial goal and we attain the historical aspiration of the social goal, how does this affect likelihood of accounting fraud? If we DO NOT attain neither historical aspiration for social goal nor historical aspiration for financial goal, how does this affect likelihood of accounting fraud
Lastly, for social aspirations: If we attain the social aspriation of the financial goal and we attain the social aspiration of the social goal, how does this affect likelihood of accounting fraud? If we attain the social aspriation of the financial goal and we do NOT attain the social aspiration of the social goal, how does this affect likelihood of accounting fraud? If we do NOT attain the social aspriation of the financial goal and we attain the social aspiration of the social goal, how does this affect likelihood of accounting fraud? If we DO NOT attain neither social aspiration for social goal norsocial aspiration for financial goal, how does this affect likelihood of accounting fraud ?"