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  3. use the data in ceosal for this exercise. consider

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

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Statistics

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

  1. (3 points) By what percentage is salary predicted toincrease if ros increases by 50 points? Does roshave a practically large effect on salary?
  2. (3 points) Test the null hypothesis that ros has noeffect on salary against the alternative that roshas a positive effect. Carry out the test at the 10% significancelevel.
  3. (2 points) Would you include ros in a final model explainingCEO compensation in terms of firm performance? Explain.
salarysalesroeros
10952759514.1191
1001995810.913
11226125.923.514
578162465.9-21
136821783.213.856
11456021.42055
10782266.716.462
10942966.816.344
12374570.210.537
833283026.337
567596.825.9109
9331977326.8-10
13394004714.841
9372513.822.344
20111580.656.363
1585675412.617
9051066.320.4141
10583199.91.9-15
9221452.719.956
1220899515.428
10221212.338.783
7592824.216.421
1414762124.4-10
10414418.315.674
16881234314.415

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