1,1

Variable Obs Mean Std. Dev. Min Max

TobinsQ 2,250 2.038087 1.394775 .8345754 19.16261

Use of raw tobinsq may make the error terms and hence residuals behave in a way

that does not keep those assumptions for OLS to be blue. It would also make the

interpretation of coefficients of regression harder.

The use of logarithm of tobinsq may, however, mitigate those potential problems

with error terms and give the coefficients a neat interpretation in terms of relative

change.

1,2.

The null hypothesis is the mean of TobinsQ with a CEO as a founder is equal to that

of TobinsQ with the CEO not being a founder. The alternative hypothesis is the mean

of TobinsQ with the CEO as a founder is lower than or higher than that of TobinsQ

with the CEO not being a founder.

H0: 1=2

H1: 1>2 or 1<2

The mean of TobinsQ with a CEO as a founder is 2.5761, and the mean of TobinsQ

with CEO not being a founder is 1.9622.

SD=(SD1^2/(n1))+SD^2/(n2))^(1/2)=0.1298,
The difference in mean is 0.6139; therefore, the t-statistic=the mean/SD=4.7296

The rejection rule is that if the absolute value t-stat is greater than Z value, then we

reject the null. If not, we reject the alternative hypothesis.

Z(0.005)=2.33 Z(0.025)=1.645 Z(0.05)=1.28

Since the t-stat is greater than all Z values at different significance levels, we

conclude that we reject the null hypothesis, and therefore at 1, 5, 10% significance

level, the mean of the TobinsQ of the sub-sample where a CEO is a founder is greater

than that of TobinsQ of sub-sample where the CEO is not a founder.

1,3.

In dealing with panel data, we need to consider if OLS is sufficient to give unbiased

estimates. We argue in this case, OLS will not give unbiased estimates because a

firms reputation or the loyalty of a firms customers are variables that are

unobservable and missing in OLS. These variables are correlated with a firms size.

So, we will use a fixed-effects model for estimation. We include lnassets in our

model.

The estimated coefficient of founderCEO is 0.02713, and the t-stat is 0.58. Since the

t-stat is less than the critical value of Z at 1, 5 or 10%, we do not reject the null
hypothesis, which is the coefficient is not significant.

So the answer to the question is the coefficient is not significantly different from

zero at 1, 5 or 10% significance levels.

Note that an estimation of the coefficient on founderCEO using OLS for 1.3 shows

that the coefficient is significant at 1, 5, 10% significance level.

1,4

The estimated coefficient on founderCEO remains. The associated t-stat is 0.24.

The coefficient is not significantly different from zero at 1, 5, 10% significance level,

given that the t-stat is even smaller.

The estimated coefficients are the same, but t-stats become smaller with robust

standard errors. Use of robust standard errors makes it even harder to reject the

null hypothesis, that is, make it even more unlikely for coefficients to be significantly

different from zero.

1,5.

The estimated coefficient on founderCEO remains to be 0.02713, and the t-stat is

0.41.

At 1, 5, 10% significance levels, the coefficient on founderCEO is not significantly

different from zero. The conclusion is not very different from that of 1.4 because

the OLS with a proper setup of dummies variables essentially takes into account a

heterogeneity factor, just as a fixed-model does. These two methods give the same

estimate of the coefficient but slightly different standard errors. If, however, we had

employed OLS in 1.4, we would have seen that the coefficient is significantly

different from zero.

We should include dummy variables if we choose to use an OLS model. This way

the dummies capture the effects of a firm-specific factor. We need not include

dummy variables if we choose to use a fixed-effect model as we have done.

1,6.

The coefficient is 0.02713, so it means on average, the tobinsq of a firm with a CEO

as a founder is 2.713% higher than that of a firm without, with everything else

controlled for. The estimated coefficient is therefore economically significant, albeit

statistically insignificant in this case.

Part 2
Instrumental variable

2,1

I choose lnage as the instrumental variable of founderCEO and perform the first

stage regression using logit regression.

The estimated coefficient on lnage is -1.2353 and the t-stat is -16.69.

This result is unsurprising because Professor Wasserman who recently completed a

case study about founder-CEO succession at Wily Technology found that in many

entrepreneurial firmsspecifically, many founders are replaced by "professional"

CEOs early in the life of the venture. That is, the older a company, the more unlike a

founder is still the CEO. I think this is because as the time passes by, a company

tends to replace its founder with a professional CEO as the latter is likely to

outperform the former. It turns out the negative coefficient justifies this rationale

and it is statistically significant at 1% significance level so the instrumental variable

inage is not weak.

2,2

I perform a 2SLS where the first stage has been done in the previous question and

estimated values of founnderCEO are substituted for founderCEO in the second

stage.

The estimated coefficient on founderCEO is 0.3012, and the t-stat is 3.74, therefore

the coefficient is significant different from zero at 1, 5, and 10% significance level.

Since in 1.3, I used fixed effects model to estimate, I should not expect the

coefficient (0.02713) to be similar to the one we have here using 2SLS where the

second stage an OLS is run. If an OLS were to be run for question 1.3, the coefficient

on founderCEO would be 0.1911, and the t-stat would be 6.46, both of which are

comparable to but different than the estimates we have here (0.3012 and 3.74) using

2SLS. An estimation of the coefficient using OLS on founderCEO for 1.3 shows that

the coefficient is significant at 1, 5, 10% significance level.