A finance executive would like to determine if a relationship exists between the current earnings per share (EPS) of a bank and the following independent variables:
• Total assets ($ billions)
• Previous period’s EPS
• Previous period’s return on average assets (ROAA)
• Previous period’s return on average equity (ROAE)
ROAA measures how effectively assets are utilized, and ROAE measures a firm’s profitability. The Excel file Bank EPS.xlsx contains these data for several banks.
a. Using PHStat, construct a regression model using all three independent variables.
b. Test the significance of each independent variable using α = 0.05.
c. Interpret the p value for each independent variable.
d. Construct a 95% confidence interval for the regression coefficients for the Previous ROAA variable and interpret the meaning.
e. Using the results from part d, comment on the significance of the Previous ROAA variable.