STATA ASSIGNMENT Harvard Case Solution & Analysis

STATA ASSIGNMENT Case Solution

Question 1: Descriptive Statistics

            The descriptive statistics have been computed for all the variables in the Stata. The mean for the CSRindex is quite large at 87.22% with only11.13% of standard deviation. Even the minimum CSR index for a company is also 45%, which shows that corporate social responsibility has formed an important part of the firms today. Similar is the result for the CSR coverage variable. The average liquidity ratio is quite low as there are a number of companies belonging to different industries. The return on assets and the return on equity ratios for all the companies are also impressive if we look at their mean values.

However, this changes with respect to the sizes of the company due to which ROE and ROA have huge standard deviations. The average size of all the selected companies is 8.71 million whereas the maximum and the minimum size is 3.66 and 14.26 million respectively. Finally, the descriptive statistics for the environmental, social and governance measures are also impressive with higher means and lower standard deviations. These ratios depict a higher degree of compliance of these companies with the corporate social responsibility initiatives. Overall, the descriptive statistics show that there might be a useful relationship between the corporate social responsibility and the financial results of all these firms. The output could be seen in Exhibit 1 in appendix.

Question 2: Pearson’s Correlation Matrix

            In this part, the Pearson Correlation matrix has been generated in Stata for all the variables. The respective correlations between all the dependent, independent and the control variables is shown with the p values. The correlation between CSR index and CSR coverage is 28.08% which I significant at 0.000. However, it is insignificant with the Market Capital of the companies. Moreover, the CSR index has a significantly negative relationship with the ROE and ROA of the firms. This relationship is also significant. Furthermore, the relationship of ROE with size and social variables is related negatively and is significant. The relationship of ROA also shows similar results. However, the market cap has positive and significant relationship with the size, social and the governance measures. The output could be seen in Exhibit 2 in appendix.

Question 3: Regressions

            The regression models have been generated in Stata for each of the three dependent variables individually. The firm effects, year effects and industry effects have also been considered by creating 6 different models for each variable. The interpretation of the results is performed below:

Results with ROE as Dependent Variable

            The table 3 in the appendix presents the results of the regression model by taking ROE as the dependent variable. This model shows consistent results with the correlation matrix and shows that the companies which have larger size also have a high return on equity ratio. Furthermore, social and governance does not have a significant impact on the ROE whereas the environmental initiatives have a significant impact. The impact of ROA on ROE is also significant in all the years. Model 2 introduces the measures of the social performance and hence we can see a significant impact on ROE 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 the 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 ROE was much better in the years 2013, 2014 and 2015 as compared to the performance in the 2010 and 2011 years..................

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