Question 1) Consider the following model: Yi = Bo + B1Xi +B2D2i + B3D3i + ui
Where Y = annual earnings of MBA graduates
X = years of service
D2 = 1 if Harvard MBA
= 0 if otherwise
D3 = 1 if Wharton MBA
= 0 if otherwise
a. What are the expected signs of the various coefficients?
b. How would you interpret B2 and B3?
c. If B2 > B3, what conclusion would you draw?
Question 2. Table below gives data on after tax corporate profits and net corporate dividend payments ($, in billions) for the United States for the quarterly period of 1999:1 to 2003:3.
a) Regress dividend payments (Y) on after tax corporate profits (X) to find out if there is relationship between the two.
b) To see if the dividend payments exhibit any seasonal pattern, develop a suitable dummy variable regression model and estimate it.
In developing the model, how would take into account that the intercept as well as the slope coefficient may vary from quarter to quarter?
c) When would you regress Y on X, disregarding seasonal variation?
d) Based on your results, what can you say about the seasonal pattern, if any, in the dividend payment policies of U.S. private corporations? Is this what you expected a priori?
TABLE: DIVIDENDS AND AFTER-TAX PROFITS, 1999:1-2003:3
NDIV = Net dividends
ATPROFITS = Corporate profits after tax with inventory valuation and capital consumption adjustments.
|
Observations
|
NDIV
|
ATPROFITS
|
|
1999:1
|
339.9000
|
593.2000
|
|
1999:2
|
333.4000
|
592.9000
|
|
1999:3
|
334.2000
|
582.1000
|
|
1999:4
|
342.0000
|
602.5000
|
|
2000:1
|
360.3000
|
551.8000
|
|
2000:2
|
377.3000
|
560.5000
|
|
2000:3
|
386.6000
|
551.5000
|
|
2000:4
|
387.6000
|
547.2000
|
|
2001:1
|
380.0000
|
536.7000
|
|
2001:2
|
371.5000
|
531.4000
|
|
2001:3
|
368.7000
|
515.5000
|
|
2001:4
|
372.6000
|
693.5000
|
|
2002:1
|
382.3000
|
698.6000
|
|
2002:2
|
393.5000
|
704.8000
|
|
2002:3
|
404.3000
|
701.2000
|
|
2002:4
|
413.1000
|
732.0000
|
|
2003:1
|
420.3000
|
713.2000
|
|
2003:2
|
427.5000
|
811.3000
|
|
2003:3
|
434.3000
|
893.7000
|