Question

The Wall Street Journal Corporate Perceptions Study 2011 surveyed readers and asked how each rated the Quality of Management and the Reputation of the Company for over 250 world-wide corporations. Both the Quality of Management and the Reputation of the Company were rated on an Excellent, Good, and Fair categorical scale. Assume the sample data for 200 respondents below applies to this study.
Reputation of Company

Quality of management Excellent Good Fair
Excellent 40 25 5
Good 35 35 10
Fair 25 10 15

Required:
a. Use α = 0.05 level of significance and test for independence of the quality of management and the reputation of the company. What is the p-value and what is your conculsion??
b. If there is a dependence or association between the two ratings, discuss and use the probabilities to justify your answer.

Answer 1

Answer:

The calculated χ² =  17.0281    falls in the critical region χ² ≥  9.49  so we reject the null hypothesis that  the quality of management and the reputation of the company are independent and conclude quality of management and the reputation of the company are dependent

The p-value is 0 .001909. The result is significant at p < 0.05

Part b:

40 > 8.5

35> 7.5

25> 4

Step-by-step explanation:

1) Let the null and alternative hypothesis as

H0: the quality of management and the reputation of the company are independent

against the claim

Ha: the quality of management and the reputation of the company are dependent

2) The significance level alpha is set at 0.05

3) The test statistic under H0 is

χ²= ∑ (o - e)²/ e where O is the observed and e is the expected frequency

which has an approximate chi square distribution with ( 3-1) (3-1)=  4 d.f

4) Computations:

Under H0 ,

Observed       Expected E              χ²= ∑(O-e)²/e

40                      35.00                          0.71

25                      24.50                         0.01

5                         10.50                         2.88  

35                      40.00                         0.62

35                      28.0                          1.75

10                       12.00                           0.33  

25                      25.00                             0.00

10                        17.50                              3.21

15                       7.50                                 7.50  

∑                                                               17.0281

     

     

Column Totals 100 70 30   200  (Grand Total)

5) The critical region is χ² ≥ χ² (0.05)2 = 9.49

6) Conclusion:

The calculated χ² =  17.0281    falls in the critical region χ² ≥  9.49  so we reject the null hypothesis that  the quality of management and the reputation of the company are independent and conclude quality of management and the reputation of the company are dependent.

7) The p-value is 0 .001909. The result is significant at p < 0.05

The p- values tells that the variables are dependent.

Part b:

If we take the excellent row total = 70 and compare it with the excellent column total= 100

If we take the good row total = 70 and compare it with the good column total= 80

If we take the fair row total = 50 and compare it with the fair column total= 30

The two attributes are said to be associated if

Thus we see that ( where (A)(B) are row and columns totals and AB are the cell contents)

AB> (A)(B)/N  

40 > 1700/200

40 > 8.5

35> 1500/200

35> 7.5

25> 800/200

25> 4

and so on.

Hence they are positively associated