Answered: Stigler and Friedland (1983) conducted…

Holt Mcdougal Larson Pre-algebra: Student Edition 2012

1st Edition

ISBN:9780547587776

Author:HOLT MCDOUGAL

Publisher:HOLT MCDOUGAL

Chapter11: Data Analysis And Probability

Section11.1: Stem-and-leaf Plots And Histograms

Problem 2E

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Heteroscedasticity

Stigler and Friedland (1983) conducted a study to determine whether the separation of company control from company ownership affects company profits. Using data from 69 companies in the United States, the authors estimate the following model:

profit_i = α + β₁asset_i + β₂management_control_i + e_i

Where i is company and:

profit_i= annual profit (in million dollar)

asset_i= company asset (in million dollar)

management_control_i = dummy variable that is worth one if the control of the company is held by the manager

The regression results are presented in the table in the picture

a. Explain whether the statements below are TRUE, FALSE, or CANNOT BE DETERMINED. "If there is a heteroscedasticity problem, the confidence interval of the OLS estimator is not valid."

b. Determine the 95% confidence interval for the parameter 2, what can you conclude?

Source |
df
MS
Number of obs =
69
F( 2,
66)
13.49
Model |
6843.42169
2 3421.71085
Prob > F
0.0000
Residual |
16735.2881
66 253.564972
= 0.2902
R-squared
Adj R-squared = 0.2687
Total | 23578.7098
68 346.745733
Root MSE
= 15.924
profits |
Coef.
Std. Err.
t
P>|t|
[95% Conf. Interval]
assets |
.0274626
.0055847
4.92
0.000
.0163124
.0386128
mcontrol |
-6.186284
3.844436
-1.61
0.112
cons |
8.087969
3.053642
2.65
0.010
1.991175
14.18476

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