Some firms have been accused of using stock splits to manipulate their stock prices before being acquired
Question:
E(y) = β0 + β1x1, + β2x2 + β3x1x2,
where
y = Firm's 3-year buy-and-hold return rate (%)
x1 = {1 if stock split prior to acquisition, 0 if not}
x2 = {1 if firm's discretionary accrual is high, 0 if discretionary accrual is low}
a. In terms of the β's in the model, what is the mean buy-and-hold return rate (BAR) for a firm with no stock split and a high discretionary accrual (DA)?
b. In terms of the β's in the model, what is the mean BAR for a firm with no stock split and a low DA?
c. For firms with no stock split, find the difference between the mean BAR for firms with high and low DA.
d. Repeat part c for firms with a stock split.
e. Note that the differences, parts c and d, are not the same. Explain why this illustrates the notion of interaction between x1 and x2.
f. A test for H0: β3 = 0 yielded a p-value of .027. Using α = .05, interpret this result.
g. The researchers reported that the estimated values of both β2 and β3 are negative. Consequently, they conclude that "high-DA acquirers perform worse compared with low-DA acquirers. Moreover, the under performance is even greater if high-DA acquirers have a stock split before acquisition." Do you agree?
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Related Book For
Statistics For Business And Economics
ISBN: 9780321826237
12th Edition
Authors: James T. McClave, P. George Benson, Terry T Sincich
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