CEO Salary and Sales We have data from 209 publicly traded companies (circa 2010
ID: 3046350 • Letter: C
Question
CEO Salary and Sales We have data from 209 publicly traded companies (circa 2010) indicating sales and compensation information at the firm-level. We are interested in investigating whether a CEO's salary is correlated with higher sales for the firm. The variable salesi represents the firm's most recent annual sales information in millions of dollars. The variable salary; represents the salary of a firm i's CEO in thousands of dollars. We use least-squares to estimate the linear regression sales,- + salary + ei and get the following estimated regression line sales 5,734 + 0.93salary 8) Critique the following statement: The regression results imply that giving their CEO a raise will likely lead to an increase in a firm's sales. (1-3 sentences)Explanation / Answer
Merely correlation does not imply causation.
Giving the CEOs a raise may not directly increase the sales. As a business, firms with higher sales tend to give their CEOs a higher salary . THis may not be true that higher salaries alone will cause sales to rise.