Multi-collinearity, Managerial Accounting

Assignment Help:

Multi-collinearity

Multiple regression analysis is based on the assumption that the independent variables are not correlated with each other, whenever the independent variables are highly correlated with each other then it is very difficult to isolate the effect of each one of these on the dependent variables. This occurs when there is a simultaneous movement of two or more independent variables in the same direction and almost at the same time. This condition is called multi-collinearity.

We can use the correlation matrix to determine whether 2 independent variables are highly correlated. If a correlation value of more than 0.8 exists between two independent variables, then the problem of multi-colinearity is bound to occur. Alternatively if the correlation coefficient between the two variables is greater than the multiple correlation coefficients, then multi-colinearity problem will occur. To remove the problem of multi-colinearlity, we drop one of the correlated variables. You can drop any of the variables.


Related Discussions:- Multi-collinearity

Control-role of management accountant , Control Control includes a ...

Control Control includes a comparison of actual performance with the plan so that deviation from the plan can be identified and corrective action taken. It can be define

What is solvency ratios, Explain Solvency ratios The term solvency refe...

Explain Solvency ratios The term solvency refers of the ability of a concern to meet its long term obligations. The long term indebtedness of a firm include debenture holders,

Homework, IF net income totaled $18,000 for one year, beginning assets were...

IF net income totaled $18,000 for one year, beginning assets were $100.000 and ending assets were $140,000, then Return on Assets for the year as a percentage will be?

Difference between direct labour and indirect labour, Difference between Di...

Difference between Direct labour and Indirect labour Direct labour:- Labour which plays an active and direct part in the production of a particular commodity is called di

Gather data about alternatives, Gather Data about Alternatives When pot...

Gather Data about Alternatives When potential areas of activity are specified, management must assess the potential growth rate of the activities, the capability of the company

Explain support activities and production process activity, Explain Support...

Explain Support activitiesand production process activity Support activities are for example schedule production set up machine purchase materials inspect item customer orde

Working capital management, stanley shoe company established a line credit ...

stanley shoe company established a line credit with a local bank. the maximum amount that can be borrowed under the terms of the agreement is $100000 at an annual rate of 12%. a co

Capital budgeting – planning investments, The management of Popular Stores ...

The management of Popular Stores Sdn. Bhd. are in the process of exploring the company’s investment opportunities.

Engineering method-cost estimation method, Engineering method These met...

Engineering method These methods are based on the use of engineering analysis of technological relationship between inputs and outputs e.g. method studies and time and motion s

What are the advantages of incremental budgeting, Advantages of incremental...

Advantages of incremental budgeting a) The budget is stable and change is gradual b) Managers can operate their departments on a steady basis c) The system is relatively

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd