EXAMPLE 7.14 Does the Cash Flow Margin Differ?

CASE 7.2 Take Group 1 to be the firms that were active and Group 2 to be those that failed. The question of interest is whether or not the mean cash flow margin is different for the two groups. We therefore test

Here are the summary statistics:

The sample standard deviations are fairly close. A difference this large is not particularly unusual even in samples this large. We are willing to assume equal population standard deviations. The pooled sample variance is

391

so that

The pooled two-sample statistic is

The -value is , where has the distribution.

In Table D, we have entries for 80 and 100 degrees of freedom. We will use the entries for 100 because is so close. Our calculated value of is between the and entries in the table. Doubling these, we conclude that the two-sided -value is between 0.005 and 0.01. Statistical software gives the result . There is strong evidence that the average cash flow margins are different.