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STATA ASSIGNMENT Case Solution & Answer

STATA ASSIGNMENT Case Solution

Results with ROA as Dependent Variable

            The table 4 in the appendix presents the results of the regression model by taking ROA as the dependent variable. This model shows consistent results with the correlation matrix and shows that companies which have larger size also have a high return on equity ratio. This remains consistent for the initial years. Furthermore, social, environment and governance measures do not have a significant impact on ROA. The impact of ROE on ROA is also significant in all the years. The model 2 introduces the measures of the social performance and hence we can see a significant impact on ROA of the companies.

Model 3 shows that the result of the corporate social responsibility is negative first but then it becomes positive in the later years and the main reason for this is that, corporate social responsibility does not have an immediate impact on the financial results of the companies and they have an impact after many years. Finally, the year fixed effects, industry fixed effects and the firm fixed effects have been introduced in model 4, 5 and 6. The results of these models suggest that the performance of the firm in terms of ROA was much better in the years 2013, 2014 and 2015 as compared to the performance in the 2010 and 2011 years.

Results with Market cap as Dependent Variable

            Table 5 in the appendix presents the results of the regression model by taking Market capital of the firms as the dependent variable. This model shows consistent results with the correlation matrix and shows that companies which have larger size also have a higher market capitalization which is quite obvious. Furthermore, social, environment and governance measures all have a significant impact on the market capitalization of the firms. The impact of ROA and ROE is not significant on market capitalization which again matches with the results of correlation matrix. Model 2 introduces the measures of the social performance and we observe significant impact on market cap as a result of measures of corporate social responsibility.

Model 3 shows that the result of the corporate social responsibility has been positive first andthey remained positive in the later years also, although corporate social responsibility does not have an immediate impact on the financial results of the companies and they have an impact after many years but in this case it is not true. Finally, the year fixed effects, industry fixed effects and the firm fixed effects have been introduced in model 4, 5 and 6. The results of these models suggest that the performance of the firm in terms of market capitalization was much better in the years 2013, 2014 and 2015 as compared to the performance in the 2010 and 2011 years.

Questions 4: GMM Methods

            The Arellano bond Methodology has been used to run the dynamic model for all the three dependent variables. Hansen’s statistics test instrument validity has also been used. The results of the GMM estimation could be seen in the tables 6, 7 and 8 in which GMM estimations have been performed for each of the three independent variables. The size, company, year and industry have also been controlled for in the GMM estimation.

            First of all, if we look at the results of model 1, then we can see that the carrying out of the CSR activities are related to the financial results in terms of ROE but they do not significantly impact on the financial results of the company. These results are consistent with the other studies also as the study named Corporate Social Responsibility and Financial Performance: The Spanish Case. If we analyze the results based on ROA as the dependent variable in model 2, then we can see that CSR activities have a negative and a significant relationship with ROA of the companies. This contradicts with the results of the study named Corporate Social Responsibility and Financial Performance: The Spanish Case……………………

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