Question: Recent studies indicate that in order to be globally competitive, form

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Question: Recent studies indicate that in order to be globally competitive, forms must form global strategic...

Recent studies indicate that in order to be globally competitive, forms must form global strategic partnerships. An investment banker wants to test whether the return on investment for international ventures is different from return on investment for similar domestic ventures. It was expected that the mean return on international (domestic) ventures might depend in an important way on the rm involved and the banker wanted to control for this. A sample of 12 forms that recently entered into ventures with foreign companies is available. For each form, the returns on investment for the international venture (I) and similar domestic ventures (D) are given:

                                 D(%)10   12   14   12  12   17   9   15 9  11 7 15

                                  I(%) 11   14   15 11  12   16 10 13 11 17  9 19

D(%)110 12 14 12 12 17 9 15 9 11 7 15 1(%)111 14 15 11 12 16 10 13 11 17 9 19 0-1 d=D-11121-1 1-2262 Assuming that the differences follow the normal distribution N(, ). Based on the above data, it has been found that d = 1.25 and sd = 2.22077. (1) Assume that = 2, At 5% level of significance, test if there is a difference between the mean returns on international ventures and the mean returns on domestic ventures. Find the P-value. (2) Assume that is unknown. At 5% level of significance, test if there is a difference between the mean returns on international ventures and the mean returns on domestic ventures

Explanation / Answer

(1) Here dbar = 1.25

sd = 2.22077

(1) Here, =2

stanard error of difference se0 = / sqrt(n) = 2/ sqrt(12) = 0.5774

Test statistic

Z = dbar / se0 = 1.25/0.5774 = 2.165

Here critical Z for 5% level of significance = +- 1.96 (as the test is two tailed test)

P- value = 2 * Pr(Z < 2.165) = 0.0303 < 0.05

so we shall reject the null hyothesis and say that the return on investment for international ventures is different from return on investment for similar domestic ventures.

(2) Here is unknown.

stanard error of difference se0 = sd/ sqrt(n) = 2.22077/ sqrt(12) = 0.6411

Test statistic

t = dbar /se0 = 1.25/ 0.6411 = 1.9498

Here critical value of t is

tcritical = t11,0.05 = 2.20

so here t < tcritical so we cannot reject the null hypothesis and can say that  the return on investment for international ventures is not different from return on investment for similar domestic ventures.

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