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Consider a regression model to explain the salaries of CEOs in terms of annual firm sales: In(salary) = 30 + 311n(sales) - 32roe -

 

Consider a regression model to explain the salaries of CEOs in terms of annual firm sales: In(salary) = 30 + 311n(sales) - 32roe - 33negros - a where salary is CEO's salary in thousands of TL, sales is the firm's sales in millions of TL, roe is firm's return on equity and negros is a dummy variable which is equal to 1 if return on firm's stock is negative. a) Do you think that the regression model could possibly suffer from outlier problem? If it does, what would be your solution? b) Do you think the variance of the error terms (of your regression model) are constant across the values of the independent variables? Does it create a problem if the variance of error terms varies? If it does, how would you solve that problem? c) Why should/should not I include posros, a dummy variable which is equal to 1 if return on firm's stock is positive to the regression model? d) Interpret the coefficients. What is the impact of sales on salary? What is the impact of roe on salary

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ANSWER a Yes the regression model could suffer from an outlier problem Outliers are data points that ... blur-text-image

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