Financial Research Methods

Financial Research Methods

Financial Research Methods

Section A

Requirement 1 (Appendix)

From the correlation table, which is based on the data of 2006: country US; it can be observed that all the independent variables are not significant except market to book value of the firms. The reason of this statement is that the significance value of all the variables except market to book value of the firms are greater than 0.05 which shows that there is no correlation between the variables. On the other hand, in the case of market to book value of the firms, it can be observed that the variable is significant.

Requirement 2

For identifying the multicollinearity among the independent variables in the same regression function, the independent variables which are highly correlated with other will have multicollinearity. However, the variables which are not correlated with the other variables will not have multicollinearity. Therefore, market to book value ratio of the firms will not have multicollinearity with the other variables.

Requirement 3

Descriptive Statistics

Lev

PROFMARG

MTBV

Size

Liquidity

CF%S

CATAR

CLTAR

EBITDA

N

Valid

175

175

175

175

175

175

175

175

175

Missing

0

0

0

0

0

0

0

0

0

Mean

35.8574

16.2154

4.1354

15.9589

1.1331

16.8331

.3903

.2501

2.5779E6

Median

50.4600

13.2100

3.1600

15.9500

.8900

12.6600

.3800

.2300

1.2736E6

Std. Deviation

4.42652E2

10.67694

9.15608

1.06869

.85147

12.61249

.19178

.11595

4.98333E6

Minimum

-5695.82

-.72

-29.60

13.38

.12

-.16

.07

.06

-7.20E5

Maximum

676.44

54.52

115.43

20.36

4.79

79.14

.86

.64

5.37E7

It can be observed that the above table is showing the descriptive statistics of the data of S&P 500 firms that include the mean, median, minimum, maximum and standard deviation of the all the variables are shown. This shows important information about the S&P 500 firms as it can be observed that mean of Leverage of the firms are high that is 35.85; however, the standard deviation of cash flow as a percentage of sales is high that is 12.6.

Requirement 4, 5, 6, 7, 8

Model Summaryb

Model

R

R Square

Adjusted R Square

Std. Error of the Estimate

Change Statistics

R Square Change

F Change

df1

df2

Sig. F Change

1

.541a

.293

.268

9.13704

.293

11.599

6

168

.000

a. Predictors: (Constant), CLTAR, Lev, Size, MTBV, Liquidity, CATAR

b. Dependent Variable: PROFMARG

ANOVAb

Model

Sum of Squares

df

Mean Square

F

Sig.

1

Regression

5809.913

6

968.319

11.599

.000a

Residual

14025.577

168

83.486

Total

19835.491

174

a. Predictors: (Constant), CLTAR, Lev, Size, MTBV, Liquidity, CATAR

b. Dependent Variable: PROFMARG

The ANOVA table is showing that the significance value is less that 0.05 which reflects that the model is significant and we can proceeds with the regression model. In addition to this, the table of model summary in the regression function is showing that there is strong relationship of dependent variable that is operating profit margin with the independent variables as it can be observed that there is 54.1 % relationship of operating profit margin with the current liabilities to total asset, leverage, firm size, firm's current asset to total assets, market to book value and liquidity.

Coefficientsa

Model

Unstandardized Coefficients

Standardized Coefficients

t

Sig.

Collinearity Statistics

B

Std. Error

Beta

Tolerance

VIF

1

(Constant)

14.522

11.994

1.211

.228

Lev

-.002

.002

-.103

-1.502

.135

.894

1.118

MTBV

.518

.084

.444

6.187

.000

.818

1.223

Size

.508

.721

.051

.705

.482

.809

1.236

Liquidity

1.932

1.223

.154

1.580

.116

.443

2.260

CATAR

-10.356

6.346

-.186

-1.632

.105

.324

3.087

CLTAR

-26.453

10.086

-.287

-2.623

.010

.351

2.850

a. Dependent Variable: PROFMARG

The coefficients table is showing the significance value of individual variables with the beta values, tolerance and variance inflation factor which presents the multicollinearity. It can be observed that all the independent variables are not significant except market to book value and current liabilities to total asset. The reason of this statement is that the significance value of market to book value and current liabilities to total asset is less than 0.05. In addition to this, it can be observed that there is negative relationship between the current liabilities to total asset and operating profit margin; and there is positive relationship between market to book value and operating profit margin ...