r-tax corporate profits

Table 6-13, found on the textbook's Web site, gives data on after-tax corporate profits and net corporate dividend payments ($, in billions) for the United States for the quarterly period of 1997:1 to 2008:2.
a. Regress dividend
payments (V) on after-tax corporate profits (X) to find out if there is a relationship between the two.
b. To see if the dividend payments exhibit any seasonal pattern, develop a suitable dummy variable regression model and estimate it. In developing the model, how would you take into account that the intercept as well as the slope coefficient may vary from quarter to quarter?
c. When would you regress Y on X, disregarding seasonal variation?
d. Based on your results, what can you say about the seasonal pattern, if any, in the dividend payment policies of U.S. private corporations? Is this what you expected a priori?

Expert Solution

(a)

Based on the 19 observations, the EViews regression results are:

Dependent Variable: NDIV Sample: 1997:1 2008:2
Variable	Coefficient	Std. Error	t-Statistic	Prob.
C ATPROFITS	-19.0132 0.6311	26.2112 0.0311	-0.7254 20.3003	0.4721 0.0000
R-squared	0.9035

As these results show, there is a statistically significant positive relationship between the two variables, an unsurprising finding.

(b), (c), & (d)

We can introduce three dummies to distinguish four quarters and can also interact them with the profits variable. This exercise yielded no satisfactory results, since both the dummies and interaction terms were completely insignificant, suggesting that perhaps there is no seasonality involved. This makes sense, for most corporations do not change their dividends from quarter to quarter. It seems that there is no reason to consider explicitly seasonality in the present case.

Raffay answered 1 year ago

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