Assessing multicollinearity via identification of high leverage points in financial accounting data / Norazan Mohamed Ramli ... [et al.]

Mohamed Ramli, Norazan and Mahmud, Zamalia and Zakaria, Husein and Idris, Mohammad Radzi and Abdul Aziz, Alizan (2010) Assessing multicollinearity via identification of high leverage points in financial accounting data / Norazan Mohamed Ramli ... [et al.]. Social and Management Research Journal, 7 (2). pp. 17-30. ISSN 1675-7017

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Abstract

Inaccurate and invalid statistical inferences in regression analysis may be caused by multicollinearity due to the presence of high leverage points (HLP) in a data set. Therefore, it is important that high leverage point which is a form ofoutlier be detected because its existence can lead to misfitting of a regression model, thus resulting in inaccuracy of regression results. In this paper, several methods have been proposed to identify HLP in a financial accounting data set prior to conducting further analysis of regression and other multivariate analysis. The Pearson scorrelation coefficient and variance inflation factors (VIF) were used to measure the success of a detection method. Numerical analysis showed that common diagnostics like the twice-mean and thrice-mean rules failed to detect HLP in the given data set whilst robust approaches such as the potentials and diagnostic-robust generalized potentials (DRGP) methods were found to be successful in identifying high leverage point as indicated by lower values of the Pearson s correlation coefficient and variance inflation factors.

Item Type: Article
Creators:
CreatorsEmail
Mohamed Ramli, Norazannorazan@tms.uitm.edu.my
Mahmud, ZamaliaUNSPECIFIED
Zakaria, HuseinUNSPECIFIED
Idris, Mohammad RadziUNSPECIFIED
Abdul Aziz, AlizanUNSPECIFIED
Subjects: H Social Sciences > HF Commerce > Accounting. Bookkeeping > Managerial accounting
H Social Sciences > HF Commerce > Accounting. Bookkeeping > Balance sheet. Financial statements. Corporation reports. Including pro forma statements
Divisions: Research Management Institute (RMI)
Journal or Publication Title: Social and Management Research Journal
ISSN: 1675-7017
Volume: 7
Number: 2
Page Range: pp. 17-30
Item ID: 13085
Uncontrolled Keywords: Multicollinearity, high leverage points, potentials, diagnosticrobust generalized potentials.
Last Modified: 30 Jun 2016 00:53
Depositing User: Staf Pendigitalan 1
URI: http://ir.uitm.edu.my/id/eprint/13085

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