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x
independent
Control
predictor
regressors
Hypothesis testing
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Significance test
Ceosal1.dta
What is the effect of return on equity (roe) on CEO salary?
Model: What is the effect of return on equity (roes) on CEO salary?
Salary = B0 + B1roe + u model function
Command: reg salary roe
Salary = 963.191 + 18.501roe regression function
B0 = constant, _cons
B1roe = re
*OLS regression wala na ang u.
*salary is in thousands so 963,191.
Change in y = (coefficient) (change in X) if change in u = 0.
A 1% change in roe changes salary by 18, 501.
Wage1.dta
Write a model explaining wage as a factor of education: Educ = B 0 + B1wage + u
Wage as a result of education: wage = B0 + B1educ + u
Estimate the OLS function.
Wage = -.904816 + .5413593educ + u
The effect of 1 year of education: Change in wage = Change in education x 1 (1 = 1
year of education) which yields .54 cents. The relationship is positive. If change,
ignore the constant and just use the slope.
Predictive wage of a person with 8 years of education: wage^ = -0.90 + 0.54(8)
which is 3.42 per hour.