Question: Consider the multiple regression results shown in Table, which attempt to explain compensation of the top executives of 9 selected major motion picture corporations based on the revenues and the return on equity of the firms.35 For example, the data for Netflix consist of a compensation number of 11.06 (in millions of dollars) for the CEO Reed Hastings, an ROE number of 8.37% (which is the same number as 0.0837), and a revenue number of 6,440 (in millions of dollars).
a. To within approximately how many dollars can you predict the compensation of the CEO of these firms based on revenue and ROE?
b. Find the predicted compensation and the residual prediction error for the CEO of Netflix, expressing both quantities in dollars.
c. If ROE is interpreted as an indicator of the firm's performance, is there a significant link between performance and compensation (adjusting for firm sales)? How do you know?
d. Is there a significant link between revenue and compensation (adjusting for firm ROE)? How do you know?
e. What exactly does the regression coefficient 0.002309 for revenue tell you?
