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The gender diversity of a large corporation鈥檚 board of directors was studied in Accounting & Finance (December 2015). In particular, the researchers wanted to know whether firms with a nominating committee would appoint more female directors than firms without a nominating committee. One of the key variables measured at each corporation was the percentage of female board directors. In a sample of 491firms with a nominating committee, the mean percentage was 7.5%; in an independent sample of 501firms without a nominating committee, the mean percentage was role="math" localid="1652702402701" 4.3% .

a. To answer the research question, the researchers compared the mean percentage of female board directors at firms with a nominating committee with the corresponding percentage at firms without a nominating committee using an independent samples test. Set up the null and alternative hypotheses for this test.

b. The test statistic was reported as z=5.1 with a corresponding p-value of 0.0001. Interpret this result if 伪=0.05.

c. Do the population percentages for each type of firm need to be normally distributed for the inference, part b, to be valid? Why or why not?

d. To assess the practical significance of the test, part b, construct a 95% confidence interval for the difference between the true mean percentages at firms with and without a nominating committee. Interpret the result.

Short Answer

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Step by step solution

01

Step-by-Step Solution Step 1: (a) Set up null and alternate hypotheses

Let 1 be the mean percentage of female board directors at firms with nominating committees and 2 be the mean percentage of female board directors at firms without nominating committees.

Null Hypothesis: The firms with a nominating committee would appoint female directors, same as firms without nominating committee.

H0:12=0

Alternate Hypothesis: The firms with a nominating committee would appoint more female directors than the firms without nominating committee.

Ha:12>0

02

(b) Interpret the result

The z value is given to be 5.51 , and the p-value is 0.0001.

The level of significance is 0.05.

As the p-value is less than the significance level, the null hypothesis should be rejected.

Therefore, the data provide sufficient evidence to indicate that 12>0.

So, the firms with a nominating committee would appoint more female directors than the firms without nominating committee.

03

(c) State the reason

The population percentage for each type of firm is not normally distributed for inference part (b) to be valid because the sample sizes for both types of firms are greater than 30. So, the Central Limit Theorem is applied to the test. The assumption that the population percentages for each type of firm are normally distributed is not required for the inference.

04

(d) Find the confidence interval

The formula for 95% z the confidence interval is

x1x2z/21n1+2n2

For confidence level, the level of significance is 0.05.

So z/2=z0.025=1.96,

Now,

z=(x1x2)12n1+22n25.51=(7.54.3)12n1+22n212n1+22n2=3.25.5112n1+22n2=0.581

So, the 95% z confidence interval is

=3.21.96(0.581)=3.21.13876

Therefore, the confidence interval is (2.06,4.34).

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