
Business regression
Hi, would someone pls help me tackel this questio?. Thank you
In a study of 100 firms, a regression of investment on earnings is analyzed, that is,
I i = α + β 1 Е i + u i
Where I is investment and E is earnings for each firm i.
1) Suppose some firms report pretax earnings and other firms report posttax earnings, but this information is unknown to the researcher. What are the implications for the regression estimates of α and β?
2) Suppose the distribution of profits is nonnormal across the firms. What are the implications for the regression estimates of α and β?
3) Suppose that a group of firms do not invest at all, that is , I=0. Show that the regression estimates of α and β is biased.
4) Suppose that a group of firms invest all their earnings, that is I=E. What is the effect on the regression estimates of α and β?