FINANCIAL RESEARCH METHODS

Financial Research Methods

Financial Research Methods

Section A

Requirement 1 (For Correlation Table- See Appendix)

The result of the correltion data shows that there is correlation among leverage, market to book value and size as the significance value is less than 0.05 and the Pearson correlation coefficient shows that the value of Pearson correlation coefficient is higher than 0.5 which shows that the value is significant. However, in the case of liquidity, firm's current asset to total assets and current liabilities to total asset, there is no correlation as the significance value of these variables is greater than 0.05.

Requirement 2

If all the variables are used as independent variables in the same regression then the variables which are highly correlated with each other will have multicollinearity among each other; however, the variables which are not correlated will not have multicollinearity that include leverage, market to book value and size of the firm.

Requirement 3 (For Descriptive Statistics Table- See Appendix)

The result of the descriptive table is showing the mean, median and standard deviation of the all the variables that are used in analyzing the data. The most important values of the above table that is means and the standard deviation of the variables are important to study as these vales are providing the accuracy of the data which has been gathered from the companies. From the above table, it is observed that the standard deviation of the operating profit margin is high as compared to the other variables. Moreover, the leverage has the highest mean value among all the variables.

Requirement 4, 5, 6, 7, 8

Model Summaryb

Model

R

R Square

Adjusted R Square

Std. Error of the Estimate

Change Statistics

Durbin-Watson

R Square Change

F Change

df1

df2

Sig. F Change

1

.381a

.145

.115

10.94959

.145

4.752

6

168

.000

1.966

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

3418.061

6

569.677

4.752

.000a

Residual

20142.103

168

119.893

Total

23560.164

174

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

b. Dependent Variable: PROFMARG

The above charts are showing that the significant value of ANOVA table is less than 0.05 and the value of R is 38.1 % and the value of R - square is 0.145 that means there is a relationship between the dependent variable that is the operating profit margin with the independent variables that are firm size, leverage, liquidity, market to book value, firm's current asset to total assets and current liabilities to total asset.

Coefficientsa

Model

Unstandardized Coefficients

Standardized Coefficients

t

Sig.

Collinearity Statistics

B

Std. Error

Beta

Tolerance

VIF

1

(Constant)

14.211

11.398

1.247

.214

Lev

.001

.003

.020

.262

.794

.865

1.156

MTBV

.302

.114

.204

2.655

.009

.858

1.165

Size

.345

.684

.040

.505

.614

.793

1.262

Liquidity

.071

1.066

.007

.067

.947

.494

2.025

CATAR

-14.718

7.181

-.271

-2.050

.042

.291

3.435

CLTAR

-8.346

11.044

-.093

-.756

.451

.334

2.997

a. Dependent Variable: PROFMARG

From the above table, it can be understood that there is not too much multi-colinearity between the variables because the values of tolerance and VIF are near to 1 which is a good indication. Moreover, the beta values of the independent variables that are firm's current asset to total assets and current liabilities to total asset are negative which shows that there is a negative relationship of the operating profit margin with the firm's current asset to total assets and current liabilities to total asset.

Moreover, there is positive relationship of operating profit margin with the firm size, leverage, liquidity and market to book value.

In addition to this, the variable that are market to book value and firm's current ...