Suppose we are interested in modeling the factors that affect salaries of CEO’s of companies. Let...

Suppose we are interested in modeling the factors that affect salaries of CEO’s of companies. Let salaryi denote CEO compensation in 1990 measured in $1000 increments. Let salesi denote the 1990 sales of a firm in millions of dollars. Let mktvali denote the market value of the firm at the end of 1990 in millions of dollars. Let profitsi denote 1990 profits in millions of dollars. Finally, let the dummy variable collegei = 1 if a CEO attended college and 0 otherwise and let the dummy variable gradi = 1 ,if a CEO attended graduate school and 0 otherwise.
First consider a simpler model where log denotes the natural logarithm (log base e):
log(salaryi) = β1 + β2 log(salesi) + β3 log(mktvali) + εi.
Assume that Classical Assumptions for MLR hold. This regression was estimated using a random sample of 177 firms. Standard errors are in parentheses:
log(sal?aryi) = 4.62 (0.25)
R2 = 0.299
(a) Test the joint significance of β2 and β3 at the 1% significance level.
Suppose an undergraduate RA student majoring in economics was working on this empirical question. Given the lack of training, this student could only think to estimate the simple regression model
log(salaryi) = β1 + β2 log(salesi) + εi. and he only reported that RSS from this regression was 46.51.
(b) Would the R2 from this simple regression be larger or smaller than 0.299? Give an explanation for your answer.
One might think that the profits of a firm would affect CEO pay (the more a firm makes, the more it can pay its CEO). Consider the following fitted model
log(sal?aryi) = 4.69 +0.161 log(salesi) +0.098 log(mktvali) +0.000036profitsi
(0.38) (0.04)
(0.064) (0.00015)
+0.162 log(salesi) +0.170 log(mktvali) (0.04) (0.05)
RSS = 45.31 TSS = 64.65 RSS = 43.295
(c) Test for the joint significance of the two slope parameters for log(mktval) and profits at the 1% signif-
icance level.
A more complete model of CEO salaries would take into effect the education of the CEOs:
log(salaryi) = β1 + β2 log(salesi) + β3 log(mktvali) + β4collegei + β5gradi + εi. (1)
This model was estimated by OLS yielding
log(sal?aryi) = 4.68 +0.160 log(salesi) +0.112 log(mktvali) −0.056collegei −0.057gradi
(0.35) (0.04)
(0.05) (0.237) (0.080)
RSS = 43.137

Expert Solution

orchestra answered 1 year ago

Suppose that we are interested in factors influencing young children’s attention to television. Specifically, we want...

Suppose that we are interested in factors influencing young children’s attention to television. Specifically, we want to test the amount of attention that children pay to television depends upon the degree of their understanding of the programming. We randomly sample 50 young children and have them watch a 60-minute program judged “easy” to understand, and have another random sample of 40 young children watch a 60-minute program judged “difficult” to understand. On average, children who watched the easy program attended...

we learn that decision making, factors that affect decision and environmental factors (controllable and uncontrollable) affect...

we learn that decision making, factors that affect decision and environmental factors (controllable and uncontrollable) affect both the decision made and their corresponding outcomes It is asserted that "When it comes to financial decisions, what you know makes more difference than how fast your brain is.". In light of this thread and issue we cover this week, please decision whether or not the quoted text is correct? Please discuss your answer.

Analyze the factors that affect wages from a quantitative economic perspective (data, formula, modeling, analysis) at...

Analyze the factors that affect wages from a quantitative economic perspective (data, formula, modeling, analysis) at least 300 words

Suppose we are interested in bidding on a piece of land and we know one other bidder is interested.

Suppose we are interested in bidding on a piece of land and we know one other bidder is interested. The seller announced that the highest bid in excess of $9,500 will be accepted. Assume that the competitor's bid x is a random variable that is uniformly distributed between $9,500 and $15,500.a. Suppose you bid $12,000. What is the probability that your bid will be accepted (to 2 decimals)?b. Suppose you bid $14,000. What is the probability that your bid will...

How do we reflect risk in DCF modeling? What factors can be adjusted in the model...

How do we reflect risk in DCF modeling? What factors can be adjusted in the model inputs to represent a higher risk versus lower risk project?

Suppose we are interested in the proportion of nursing majors at a university, and we take...

Suppose we are interested in the proportion of nursing majors at a university, and we take a random sample of 150 students to estimate the percent of students in our class who are nursing majors. What is the population? What is the sample? What is the variable? Is the variable qualitative or quantitative?

We are interested in factors that contribute to obesity. The discovery of the hormone leptin suggests...

We are interested in factors that contribute to obesity. The discovery of the hormone leptin suggests that appetite control is influenced by this compound. Biologists have identified a strain of mutant mice that become obese when offered free access to food. However, genetic analysis shows that this particular strain of mice are "wild-type" (ob+) for the leptin gene, and do produce the compound. Based on the parabiosis experiments in mice that we reviewed, explain what might be causing these mice...

Suppose we are interested in studying flight delays. We know that on average there are 100...

Suppose we are interested in studying flight delays. We know that on average there are 100 delays in a month with a population standard deviation of 238 delays. Suppose we take a sample of 30 flight delays from American airlines only and we find that the average from that sample for that month is 306 delays. We are interested in seeing if the number of flight delays are increasing. What is the standard error? What is the margin of error...

suppose we are interested in bidding on a piece of land and we know one other...

suppose we are interested in bidding on a piece of land and we know one other bidder is interested. The seller announced that the highest bid in excess of $10,000 will be accepted. Assume that the competitors bid x is a random variable that is uniformly distributed between $10,000 and $15,400. A) suppose you bid $12,000. What is the probability that your bid will be accepted (to 2 decimals)? B) suppose you bid $14,000. What is the probability that your...

Suppose we are interested in the effect of drinking on student achievement. We survey students at...

Suppose we are interested in the effect of drinking on student achievement. We survey students at the University of Rhode Island about their drinking habits - the number of times they “binge” drank (had 5+ drinks in one sitting) in the previous semester - and their previous semester’s GPA. We also have data on their gender, race, parent’s education, and family income. If we estimate the following regression: GP Ai = β0 + β1BingeEventsi + γXi + i Where GP...

Question