Table 1: Determinants of CEO salar ies SalaryLog salarySalary Log salary 0.57229
ID: 1134985 • Letter: T
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Table 1: Determinants of CEO salar ies SalaryLog salarySalary Log salary 0.572296*** 0.000594*** 0.193214 0.000254 (0.100941) (0.000104) (0.253525) (0.000262) Profits Market value 0.025921 0.000023 (0.015917) (0.000016) Observations Notes: Standard errors are in parentheses.variable significant at 10%% leve ** variable significant at 5% level, variable significant at 1% level a) Interpret the coefficient on Profits in models (1) and (2) b) Is the effect of Profits on CEO salary of the sign you expected? Why? c) Interpret the coefficient on Profits in models (3) and (4) where we add firm's market value d) When we add firm's market value to the regressions the coefficients on CEO salary de- crease. Explain why.Explanation / Answer
a. Model 1 - when the profits of the company increase by 1 unit the salary of the CEOs increase by 0.572296 units.
Model 2 - when the profits of the company increase by 1 unit the log of the salary of the CEOs increase by 0.000594 units.
b. Yes, they were expected to have a positive sign because as the profits of the company increase the salaries paid to them are expected to increase.
c. Model 3 - when the profits of the company increase by 1 unit the salary of the CEOs increase by 0.193214 units.
Model 4 - when the profits of the company increase by 1 unit the log of the salary of the CEOs increase by 0.000254 units.
d. The coefficients decrease because of the potential negative effect of the market value on the profits and/or the multicollinearity effect.
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