] QUESTION FIVE

A manager wanted to expand the operation of his firm. He was however wondering if the expansion will impact on their financial performance. The research department quickly sampled 750 firms and collected data on their financial performance measured with Return on Capital Employed (ROCE) in percentages, number of branches (X₁₎, age of firm in year (X₂), education of manager in years (X₃), and number of employees (X₄). The results were estimated in EVIEWS 10 using linear regression model. Study the results carefully and answer the questions that follow.

Dependent variable: Financial performance (Y)

Variables	Coefficient	Std. Error	t-statistics	p- value
Number of branches	0.54	0.63865	0.85	0.5674
Size of the firm	0.86	0.08957	9.61	0.0000
Education of managers	2.16	0.34657	6.24	0.0000
Number of employees	3.13	0.29846	10.49	0.0000
Constant	4.98	4.85789	1.06	0.9875
Number of observations	300
F-statistics	40.9844
Prob (F-statistics)	0.0000
R-squared	0.8432
Adj R-squared 0.8038

Required:

1. Write down the regression equation. (3 marks)

2. Identify the significant and insignificant variables at 5% (0.05) significance level. (3 marks)

3. Interpret the coefficients of the significant variables. (6 marks)

4. Explain the value of R-square . (3 marks)

[Total: 15 marks]

End Paper