a. Explanation Use Minitab to estimate the regression model with an interaction term. Software procedure: Step by step procedure to fit a regression model with interaction term is given below: Open the Minitab worksheet â€œ CommunityBanks â€�. Select Stat > Regression > Regression > Fit regression model . Double click on C3 ROAA % to add it into Reponses box. Double click on C4 and C5 to add â€œ Efficiency ratio % â€� and â€œ Total Risk-based Capital Ratio â€� to Continuous predictors box. Click on Model. In the Model dialog box, Click on Efficiency ratio in the predictors list. While holding down the Ctrl key, click on Total Risk-based Capital Ratio in the Predictors list. Click on Add , that is to the right of interactions through orders and click on OK. In the main regression dialog box, click on OK . The fitted regression model with the interaction term is: ROAA = 1.108 − 0.007 Efficiency Ratio + 0.0448 Total Risk-based Capital Ratio − 0.0003 * EfficiencyRatio * Total Risk-based Capital Ratio Test for significance of interaction term: Step 1: The null and alternative hypothesis are given below: H 0 : There is no significant contribution of interaction term b. To determine Determine the appropriate model.

Basic Business Statistics, Student Value Edition

14th Edition

ISBN: 9780134685113

Author: Mark L. Berenson, David M. Levine, David F. Stephan, Kathryn Szabat

Publisher: PEARSON

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Chapter 14, Problem 44PS

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Develop a model with an interaction term, and test whether it makes a significant contribution to model at 0.05 level of significance.

To determine

Determine the appropriate model.

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Chapter 14, Problem 43PS

Chapter 14, Problem 45PS

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Training Dept. of Nimrod Inc wants to develop a regression-based compensation model (compensation in $ per year, Comp) for its mid-level managers to encourage performance, loyalty, and continuing education based on three variables. ▪ Business unit-profitability (Profit per year in $). ▪ Working experiences in Nimrod Inc (Years). ▪ Whether or not a manager has a graduate degree (Grads). If a manager has a graduate degree equals 1, 0 otherwise. Table Attached Question: Which explanatory variables and interaction terms are significant and not significant at alpha = 5%? Explain your answer briefly.

4. To investigate whether accounting quality affects the firm value, the following regression is considered: FirmValue, = a + B,AQt + B2FirmSize, + Ht Required: (a). How would you modify the above model to be able to test the hypothesis that the firm value is higher after the adoption of the International Financial Reporting Standards (IFRS)? Explain the modified model, the expected results and the implication of the results. (b). How would you modify the above model to test the hypothesis that the average impact of the accounting quality on the firm value is higher after the adoption of IFRS? Explain the modified model, the expected results and the implication of the results.

Training Dept. of Nimrod Inc wants to develop a regression-based compensation model (compensation in $ per year, Comp) for its mid-level managers to encourage performance, loyalty, and continuing education based on three variables. ▪ Business unit-profitability (Profit per year in $). ▪ Working experiences in Nimrod Inc (Years). ▪ Whether or not a manager has a graduate degree (Grads). If a manager has a graduate degree equals 1, 0 otherwise. Table Attached Question: Based on the regression result, write the estimate equation of the regression model for compensation

Chapter 14 Solutions

Basic Business Statistics, Student Value Edition

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Develop a model with an interaction term, and test whether it makes a significant contribution to model at 0.05 level of significance.

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Develop a model with an interaction term, and test whether it makes a significant contribution to model at 0.05 level of significance.

Determine the appropriate model.

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