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

Extensions to linear programming, Extensions to Linear Programming In man...

Extensions to Linear Programming In many real situations the solutions to linear programming models make sense only if they have integer values. Rounding off the linear programmi

Explain product cost, Explain product cost Product costs are those cost...

Explain product cost Product costs are those costs which are associated with and directly identifiable with the product. In other words, which are assigned to the product are p

Explain the various stages of product life cycle, Various stages of product...

Various stages of product life cycle Typically the life cycle of a manufactured product will consist of the following stages: 1) market research : before any investment in

Disadvantages of participatory budgets , Disadvantages of participatory bud...

Disadvantages of participatory budgets   They consume more time and therefore are more expensive The advantage of management participation may be negated by failure t

Determine the profitability ratios in relation to investment, Determine the...

Determine the Profitability ratios in relation to investment a) Return on capital employed/ return on investment b) Return on equity or return on equity share holders' funds

How much was Topaz’s operating income (income before taxes), How much was T...

How much was Topaz’s operating income (income before taxes) last year?

CH 7, Hickory Company manufactures two products—14,000 units of Product Y a...

Hickory Company manufactures two products—14,000 units of Product Y and 6,000 units of Product Z. The company uses a plantwide overhead rate based on direct labor-hours. It is cons

Periodic system and a perpetual system, Your manager has informed you that ...

Your manager has informed you that the company is trying to determine if it should use a periodic system or a perpetual system in accounting for the inventory. He wants you to spea

What is performance budgeting, What is performance budgeting The conce...

What is performance budgeting The concept of performance budgeting is used mainly in the government and public sector undertakings. It projects the government activities an

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