. Suppose as part of the Public Protectors' inquiry (in South Africa) into gender discrimination and nepotism you are asked, as an expert in econometrics, to compare total compensation among top executives in a large set of South African public corporations (a) Let Female be an indicator variable that is equal to 1 for females and 0 for males. A regression of the logarithm of earnings onto Female yields In(Earnings) = 6.48 – 0.44Female, SER = 2.65 (0.01) (0.05) where SER is the Standard Error of the Regression, and standard errors are in parentheses. IThese scores range from 1 (lowest) to 36 (highest).

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2. Suppose as part of the Public Protectors' inquiry (in South Africa) into gender discrimination
and nepotism you are asked, as an expert in econometrics, to compare total compensation
among top executives in a large set of South African public corporations
(a) Let Female be an indicator variable that is equal to 1 for females and 0 for males.
A regression of the logarithm of earnings onto Female yields
In(Earnings) = 6.48 – 0.44Female, SER= 2.65
(0.01) (0.05)
where SER is the Standard Error of the Regression, and standard errors are in
parentheses.
IThese scores range from 1 (lowest) to 36 (highest).
Question 2 continues on the next page...
EC3741
Introductory Econometrics I
Page 3 of 3
(i) The estimated coefficient on Female is -0.44. Explain what this value means.
(ii) The SER is 2.65. Explain what this value means.
(iii) Does this regression suggest that female top executives earn less than top male
executives? Explain.
(iv) Does this regression suggest that there is gender discrimination? Explain.
(b) Two new variables, the market value of the firm (a measure of firm size, millions
dollars) and stock return (a measure of firm performance, in percentage points),
are added to the regression:
In(Earnings) = 3.86 – 0.28Female + 0.37ln(MarketV alue) + 0.004Return,
(0.003)
(0.03) (0.04)
(0.004)
n = 46, 670, R = 0.345
standard errors are in parentheses, n is the sample size.
(i) The coefficient on In(MarketValue) is 0.37. Explain what this value means.
(ii) The coefficient on Female is now –0.28. Explain why it has changed from the
regression in (a).
(c) Are large firms more likely to have female top executives than small firms? Explain.
Transcribed Image Text:2. Suppose as part of the Public Protectors' inquiry (in South Africa) into gender discrimination and nepotism you are asked, as an expert in econometrics, to compare total compensation among top executives in a large set of South African public corporations (a) Let Female be an indicator variable that is equal to 1 for females and 0 for males. A regression of the logarithm of earnings onto Female yields In(Earnings) = 6.48 – 0.44Female, SER= 2.65 (0.01) (0.05) where SER is the Standard Error of the Regression, and standard errors are in parentheses. IThese scores range from 1 (lowest) to 36 (highest). Question 2 continues on the next page... EC3741 Introductory Econometrics I Page 3 of 3 (i) The estimated coefficient on Female is -0.44. Explain what this value means. (ii) The SER is 2.65. Explain what this value means. (iii) Does this regression suggest that female top executives earn less than top male executives? Explain. (iv) Does this regression suggest that there is gender discrimination? Explain. (b) Two new variables, the market value of the firm (a measure of firm size, millions dollars) and stock return (a measure of firm performance, in percentage points), are added to the regression: In(Earnings) = 3.86 – 0.28Female + 0.37ln(MarketV alue) + 0.004Return, (0.003) (0.03) (0.04) (0.004) n = 46, 670, R = 0.345 standard errors are in parentheses, n is the sample size. (i) The coefficient on In(MarketValue) is 0.37. Explain what this value means. (ii) The coefficient on Female is now –0.28. Explain why it has changed from the regression in (a). (c) Are large firms more likely to have female top executives than small firms? Explain.
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