Question

Problem 07-14 (Categorical Independent Variables)

A study investigated the relationship between audit delay (the length of time from a company’s fiscal year-end to the date of the auditor’s report) and variables that describe the client and the auditor. Some of the independent variables that were included in this study follow:

Industry	A dummy variable coded 1 if the firm was an industrial company or 0 if the firm was a bank, savings and loan, or insurance company.
Public	A dummy variable coded 1 if the company was traded on an organized exchange or over the counter; otherwise coded 0.
Quality	A measure of overall quality of internal controls, as judged by the auditor, on a 5-point scale ranging from “virtually none” (1) to “excellent” (5).
Finished	A measure ranging from 1 to 4, as judged by the auditor, where 1 indicates “all work performed subsequent to year-end” and 4 indicates “most work performed prior to year-end.”

Delay (Days)	Industry	Public	Quality	Finished
62	0	0	3	1
45	0	1	3	3
54	0	0	2	2
71	0	1	1	2
91	0	0	1	1
62	0	0	4	4
61	0	0	3	2
69	0	1	5	2
80	0	0	1	1
52	0	0	5	3
47	0	0	3	2
65	0	1	2	3
60	0	0	1	3
81	1	0	1	2
73	1	0	2	2
89	1	0	2	1
71	1	0	5	4
76	1	0	2	2
68	1	0	1	2
68	1	0	5	2
86	1	0	2	2
76	1	1	3	1
67	1	0	2	3
57	1	0	4	2
55	1	1	3	2
54	1	0	5	2
69	1	0	3	3
82	1	0	5	1
94	1	0	1	1
74	1	1	5	2
75	1	1	4	3
69	1	0	2	2
71	1	0	4	4
79	1	0	5	2
80	1	0	1	4
91	1	0	4	1
92	1	0	1	4
46	1	1	4	3
72	1	0	5	2
85	1	0	5	1

(a)

Develop the estimated regression equation using all of the independent variables included in the data.

Let x₁ represent Industry.

Let x₂ represent Public.

Let x₃ represent Quality.

Let x₄ represent Finish.

If required, round your answer to three decimal places. For subtractive or negative numbers use a minus sign even if there is a + sign before the blank.

(b)

How much of the variation in the sample values of delay does this estimated regression equation explain?

If required, round your answer to one decimal place.

What other independent variables could you include in this regression model to improve the fit?

(c)

Test the relationship between each independent variable and the dependent variable at the 0.05 level of significance.

If required, round your answers to four decimal places.

The p-value associated with the estimated regression parameter b₁ is

The p-value associated with the estimated regression parameter b₂ is

The p-value associated with the estimated regression parameter b₃ is

The p-value associated with the estimated regression parameter b₄ is

d)	Remove all independent variables that are not significant at the 0.05 level of significance from the estimated regression equation. What is your recommended estimated regression equation? Enter a coefficient of zero for any independent variable you chose to remove.
	If required, round your answer to three decimal places. Do not round intermediate calculations.

Answer 1