You are studying investment demand and want to estimate how ownership structure and type of industry affect the fraction of a firm’s new capital that…

You are studying investment demand and want to estimate how ownership

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structure and type of industry affect the fraction of a firm’s new capital that is

leased rather than purchased. You have a sample of 10,000 firms and have

information on the value of newly leased capital as a fraction of total new capital

in the firm during the past year. Your economic model suggests that how the firm

is owned (publicly traded versus privately held), and the type of industry it is in,

affect the fraction of new capital that is leased rather than purchased.

2

Ti = 1 if the firm is publicly traded and 0 if it is privately held (being publicly

traded one of 2 options for ownership status)

Ni = 1 if the firm is privately held and not publicly traded (Not publicly traded is

the second of the two options for ownership status, so Ti + Ni = 1 for all

observations)

Hi = 1 if the firm is in heavy manufacturing and 0 if it is not in heavy

manufacturing (one of three types of firms)

Li = 1 if the firm is in light manufacturing and 0 if it is not in heavy

manufacturing (the second of three types of firms)

Oi = 1 if the firm is in neither heavy nor light manufacturing and 0 if it is in either

light or heavy manufacturing (This third firm-type category is the “Other”

category, so for each i Hi + Li + Oi=1)

Fi = fraction of new capital this year that is leased rather than purchased.

What is the difference in the expected F between {Light manufacturing firms (L=1)

that are Privately held (N=1)} and {Other manufacturing firms(O=1) that are privately

held (N=1) } ?

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