Answer to the question 01

Interpretation: Independent variables - firm_age and mgt_expertise both have positive impact on the
dependent variable productivity.

When firm_age increases by 1 unit, productivity increases by 0.0436849 units, holding mgt_expertise
constant and when mgt_expertise increases by 1 unit, productivity increases by 0.2216455 units, holding
firm_age constant. When firm_age and mgt_expertise are both equal to zero, the average productivity
of firms is 12.55814 units.

P-value of test statistics of firm_age and mgt_expertise is 0.521 and 0.002 respectively. We know that
when P-value is greater than level of significance, we accept the null hypothesis (slope coefficient = 0).
Thus, at 5.0% level of significance, the coefficient of firm_age is not significantly different from zero.
However, the coefficient of mgt_expertise is significantly different from zero.

The value of R-squared is 1.55%, which means that only 1.55% of the variation of the model is explained
by the independent variables and the rest of the variation of the dependent by the regression residual.
 Answer to the question 02

Test of heteroskedasticity: I have conducted Breusch-Pagan-Godfrey test, for detecting whether the
data exhibits heteroskedasticity. The null hypothesis of the test is Ho: there is constant variance.
Breusch-Pagan-Godfrey test uses Chi-square distribution. The calculated value of test statistic of Chi-
square is 0.23. For degrees of freedom= 2 and level of significance of 5.0%, critical value for Chi-square
distribution is 9.49, which is greater than the test statistic 0.23. Thus, we accept the null hypothesis that
Ho: there is constant variance.

In another way, the probability value of Chi-square test is 63.32% which is higher than the level of
significance of 5.0%. Thus, we can draw same conclusion as above that the data does not exhibit
heteroskedasticity.

Test of multicollinearity: I have conducted VIF test for detecting multicollinearity in the data. The VIF of
the each independent variable is 1.21, which is far lower than the rule of thumb VIF of 10.0. Thus, we
conclude that there is no multicollinearity in the data.
Test of model misspecification: I have conducted Ramsey RESET test to detect whether the model
chosen is properly specified, meaning that whether the model omits and important variable. The null
hypothesis of the test is Ho: model has no omitted variables. The calculated value of the test statistic is
2.73. For degrees of freedom k=3 and n=931, the critical value of F distribution is 2.61, which is smaller
than the calculated value of 2.73. This suggests that the null hypothesis can be rejected by a narrow
margin.

Looking another way, the probability value of F statistic is 4.3%, which is lower than the level of
significance of 5.0%. Thus, we can draw similar conclusion as above that the model has omitted
variables.

One limitation of this test is that this test does not tell us which important variables are omitted and
which irrelevant variables are included.
 Answer to the question 03

Both The scatter plots: resid_square & yhat and resid_square & mgt_expertise suggests
heteroskedasticity is not present in the data because as yhat and mgt_expertise increase, the
distribution of resid_square does not increase, rather the resid_square mostly clusters below 5 when
the yhat and mgt_expertise increase.
 Answer to the question 04

The productivity declines as the firms age increases. With one unit increase in firm_age, the productivity
of the firm drops by 0.2037134 units. However, the dependent variable has non-linear relationship with
the independent variable firm_age. Beyond the value of firm_age > 2.1645204 units, the relationship
between productivity and firm_age reverses. This is called the turning point.

Productivity

2.1645204 Firm_age

However, both firm_age and firm_age_square are not statistically significantly different from zero as the
probability value of the coefficients of these variables is greater than 5.0%.
 Answer to the question 05

The Ramsey RESET score of this regression model is 1.33 and probability value is 26.41%. Probability
value of F statistic is greater than 5.0%. Thus, we accept the null hypothesis Ho: model has no omitted
variables.

Firms, otherwise similar, which have internet access, earn 0.6784231 units more than, otherwise similar,
firms which does not use internet. The estimate is statistically significant as the probability value is less
than 5.0% level of significance.