Explain Why a Fixed Effects Model Is Not Necessary in a Case

question 9

Essay

Explain why a fixed effects model is not necessary in a case where fixed effects exist but the fixed effects are not correlated with the independent variable.

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Definitions:

Independent

Not influenced or controlled by others in matters of opinion, conduct; not depending on another's authority.

Return on Assets

A financial ratio that shows the percentage of profit a company earns in relation to its overall resources (total assets).

Net Present Value

In capital budgeting, this refers to the variance between the current value of incoming cash and the current value of outgoing cash across a specific period, utilized to determine an investment's profit potential.

Present Value

The contemporary value of money expected to be received in the future or a flow of cash, discounted by a certain rate of return.