Use the data in CEOSAL for this exercise. Consider an equation to explain salaries of CEOs...

Use the data in CEOSAL for this exercise. Consider an equation to explain salaries of CEOs in terms of annual firm sales, return on equity (roe, in percentage form), and return on the firm’s stock (ros, in percentage form). Answer questions after estimating the equation

log(salary)=β0+β1log(sales)+β2roe+β3ros+u.

(3 points) By what percentage is salary predicted to increase if ros increases by 50 points? Does ros have a practically large effect on salary?
(3 points) Test the null hypothesis that ros has no effect on salary against the alternative that ros has a positive effect. Carry out the test at the 10% significance level.
(2 points) Would you include ros in a final model explaining CEO compensation in terms of firm performance? Explain.

salary	sales	roe	ros
1095	27595	14.1	191
1001	9958	10.9	13
1122	6125.9	23.5	14
578	16246	5.9	-21
1368	21783.2	13.8	56
1145	6021.4	20	55
1078	2266.7	16.4	62
1094	2966.8	16.3	44
1237	4570.2	10.5	37
833	2830	26.3	37
567	596.8	25.9	109
933	19773	26.8	-10
1339	40047	14.8	41
937	2513.8	22.3	44
2011	1580.6	56.3	63
1585	6754	12.6	17
905	1066.3	20.4	141
1058	3199.9	1.9	-15
922	1452.7	19.9	56
1220	8995	15.4	28
1022	1212.3	38.7	83
759	2824.2	16.4	21
1414	7621	24.4	-10
1041	4418.3	15.6	74
1688	12343	14.4	15

Expert Solution

orchestra answered 11 months ago

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