Calculate the return on equity (ROE) for a sample of 20 banks for the year before the Sarbanes-Oxley Act was enacted. For the same sample of banks, calculate the ROE for the year following the enactment of the Sarbanes-Oxley Act.

In the banking industry, the return on equity ratio or percentage is used to evaluate the financial performance of a bank. Such information is extremely valuable to investors.

 

Calculate the return on equity (ROE) for a sample of 20 banks for the year before the Sarbanes-Oxley Act was enacted. For the same sample of banks, calculate the ROE for the year following the enactment of the Sarbanes-Oxley Act.

 

Later, answer the following questions:

 

  • After the enactment of the Sarbanes-Oxley Act, was the average bank’s ROE lower than it was before the act? If so, why do you think that was the case?
  • What is the null hypothesis for this hypothesis test?
  • What is the alternative hypothesis for this hypothesis test?
  • Choose at least three different significant levels to conduct the hypothesis test. Is it possible that a Type I error occurred with the hypothesis test? Why or why not?
  • Is it possible that a Type II error occurred? Why or why not?
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