Question

Two new​ variables, the market value of the firm​ (a measure of firm​ size, in millions of​ dollars) and stock return​ (a measure of firm​ performance, in percentage​ points), are added to the​ regression: ModifyingAbove ln (Earnings )with caret equals 3.86 minus 0.28 Female plus 0.37 ln (MarketValue )plus 0.004 Return(Earnings)=3.86−0.28Female+0.37ln(MarketValue)+0.004Return​, ​ (0.030.03​) ​ (0.040.04​) ​ (0.0040.004​) ​ (0.0030.003​) n​ = 46,670, Upper R overbar squared R2 ​= 0.345. If MarketValue increases by 4.644.64​%, what is the increase in​ earnings

Answer 1

The increase in earnings can be calculated by multiplying the change in market value by the coefficient for market value in the regression equation. If the market value increases by 4.64%, the increase in earnings would be approximately 1.713%.

Step-by-step explanation:

The increase in earnings can be calculated by multiplying the change in market value by the coefficient for market value in the regression equation.

In this case, the coefficient is 0.37. So, if the market value increases by 4.64%, the increase in earnings would be:

Increase in earnings = (Change in market value) x (Coefficient for market value) = (4.64%) x (0.37) = 0.017128

Therefore, the increase in earnings would be approximately 0.017128 or 1.713%.