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A NOTE ON THE USE OF REGRESSION ANALYSIS IN ACCOUNTING: COPING WITH MULTICOLLINEARITY *
Author(s) -
Ferris Kenneth R.
Publication year - 1982
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/j.1467-629x.1982.tb00129.x
Subject(s) - multicollinearity , collinearity , ordinary least squares , variance inflation factor , statistics , econometrics , regression analysis , estimation , regression , linear regression , robust regression , mathematics , audit , accounting , economics , management
A major obstacle to the effective utilization of regression analysis in accounting practice and research is the presence of multi‐collinearity. This paper analyzes the impact of multicollinearity on ordinary least squares (OLS) estimation, and describes a recently developed estimation procedure, ridge regression analysis (RRA), that offers the possibility of improved coefficient estimation. An auditing example is provided comparing the results of OLS to those of RRA.