1. An equation explaining chief executive ocer salary is (standard errors in par
ID: 1096620 • Letter: 1
Question
1. An equation explaining chief executive ocer salary is (standard errors in parenthe-
ses):
log(salary) = 4:59
(0:30)
+ 0:257
(0:032)
log(sales) + 0:011
(0:004)
roe + 0:158
(0:089)
finance
+0:181
(0:085)
consprod ?? 0:283
(0:099)
utility
n = 209; R2 = 0:357
where salary is the CEO's 1990 salary in thousands of Rands, sales is the rm's
1990 sales in millions of Rands, roe is the rm's 1988{1990 average return on equity,
finance, consprod and utility are binary variables indicating the nancial, consumer
products, and utilities industries. The omitted industry is transportation.
(a) Compute the approximate percentage di
erence in estimated salary between
the utility and transportation industries, holding sales and roe xed. Is the
di
erence statistically signicant at the 1% level?
(b) Use equation (7.10) in Wooldridge (p. 233) to obtain the exact percentage
di
erence in estimated salary between the utility and transportation industries
and compare this with the answer obtained in part (a).
(c) What is the approximate percentage di
erence in estimated salary between the
consumer products and nance industries? Write an equation that would allow
you to test whether the di
erence is statistically signicant.
Explanation / Answer
ANswer:
1. The approximate difference is just the coeficient on utility times 100, or 28:3%.
The t statistic is :283=:099 2:86,
which is very statistically significant.
2.
100[exp(:283)-- 1) 24:7%,
and so the estimate is somewhat smaller in magnitude.
3. (c) The proportionate di
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.