# Question

1. Write the estimated regression equation predicting leverage (L) based on shareholder rights (R).

2. Carry out a statistical test for the existence of a linear relationship between the two variables.

3. The reported r2 value was 16.50%. Comment on the predictive power of the regression equation linking a firm's leverage with the strength of the rights of its shareholders.

A study was undertaken to assess the relationship between a firm's level of leverage and the strength of its shareholders' rights. The authors found that firms with more restricted shareholder rights tended to use higher leverage: they assumed more debt. This empirical result is consistent with the theory of finance.

The regression resulted in an intercept estimate of – 0.118 and a slope estimate of - 0.040. The t-statistic value was – 2.62, and the sample size was 1,309.

2. Carry out a statistical test for the existence of a linear relationship between the two variables.

3. The reported r2 value was 16.50%. Comment on the predictive power of the regression equation linking a firm's leverage with the strength of the rights of its shareholders.

A study was undertaken to assess the relationship between a firm's level of leverage and the strength of its shareholders' rights. The authors found that firms with more restricted shareholder rights tended to use higher leverage: they assumed more debt. This empirical result is consistent with the theory of finance.

The regression resulted in an intercept estimate of – 0.118 and a slope estimate of - 0.040. The t-statistic value was – 2.62, and the sample size was 1,309.

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