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.
Then, answer the following questions:
• Was the average bank’s ROE lower following the enactment of the
Sarbanes-Oxley Act than before the act? If so, why do you think that was the case?
• What’s the null hypothesis for this hypothesis test?
• What’s 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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