Interpretation of Multiple Regression

A multiple linear regression model was conducted to determine if debt to equity (dependent
variable) could be predicted from log board size, institution holding, insider holding, and return
on assets, log total assets, percentage of dividend and percentage of Ned (independent variable).
The null hypotheses tested were that the multiple R 2 was equal to 0 and the regression
coefficients (the slope) were equal to 0.The data were screened for missing values and violation
of assumption prior to analysis. There were no missing data.

Linearity:
The assumption of linearity was tested via examination of dependent variable and independent
variable. We check the error of functional misspecification we apply the Ramsey Reset test, we
see the Find T value of this test.Below table show that F and T value of this test is significant,
(F&T) both value is significant at 5% level. It mean that data is linear no functional
misspecification is present in data.

t-statistic
F-statistic
Likelihood ratio

Value
1.997427
3.989716
4.158286

df
164
(1, 164)
1

Probability
0.0474
0.0474
0.0414

Normality:
The

assumption of normality was tested via examination the value Jarque_bera and skewness.For

this analysis firstly we run the descriptive analysis and take the value of Jaarque bera and
skewness.Below table value show that data is normal.The boxplot suggested a relatively normal
distributional shape(with no outliers).

Stationarity:
A multiple regression has a conditioned data is in Stationarity formed, if the data is not stationary
so it is not fulfil the condition of Multiple regression so multiple regression is not apply. To
check the data is in stationary form or not we apply the unit root analysis. Below table show that
t value of all variable is significant it mean that data is stationary.

Independence
A relatively random display of point in the scatterplots of residuals against values of the
independent variable and residuals against predicted values provided evidence of independence.
The Durbin-Watson statistics was computed to evaluate independence of error and was 0.81
which is not acceptable.so we have two option to Durbin-Watson test and Breusch-Godfrey LM
test, firstly we apply the Durbin Watson test AR(1) so after apply the AR(1) the durbin Watson
value is improve 1.84 and its show that data has no autocorrelation so no need to apply BreuschGodfrey LM test.This suggests that the assumption of independent error has been met.

Homogeneity of variance
In order to observe the effect of hetroskedasticity on the OLS estimators, first the simple
regression model will be examined, then the effect of hetroskedasticity in the form of the
variance-covariance matrix of the error terms of the multiple regression model will be presented,
and finally using matrix algebra, the effect of hetroskedasticity in a multiple regression
framework will be shown.

In general there are two ways of detecting the presence of heteroskedasticity. The first is by
inspection of different graphs, and this is called the informal way, while the second way is by
applying appropriate tests that can detect heteroskedasticity. The informal way is not apply
because graphical method is not applicable on multiple regression. The formal methods include
various tests for the presence of heteroskedasticity, some of which will be discuss in below. We
apply white test for heteroskedasticity. Test for heteroskedasticity that eliminates the problems
that appeared in the previous tests. White's test is also an LM test, but it has the advantages that
(a) It does not assume any prior knowledge of heteroskedasticity,
(b) It does not depend on the normality assumption as the Breusch-Pagan test
(c)It proposes a particular choice for the Zs in the auxiliary regression.
The steps involved in White's test assuming a model six explanatory variables and one dependent
variable.
Firstly we apply regression equation then we apply heteroskedasticity test in eviews white test is
apply.

Below table provided evidence of homogeneity of variance.

Multicollinearity:
To dectect the multicollinearity we have different method mostly we use two First one is
correlation Matrix and second one is Variance inflation factor.
Correlation matrix
Apply the Correlation test in data

See above table no value is correlated maximum value of correlation is 0.39 so this value give
evidence no multicollinearity present in the data.
Variance inflation test
To check the multicollinearity we apply the variance inflation test in eviews.

Above table show that no value is greater than 5 so it show that data has no multicollinearity.

Regression Result
Debt to equity (dependent variable) could be predicted from regress the (independent variable)
log board size, instutional holding, insider holding, return on assets, log total assets ,percentage
of dividend and percentage of ned.so regression result as below.

The result of the multiple linear regression suggest that a significant proportion of the total
variation in Dependent variable was predicted by independent variable and F(6,173)=17.84 and P
value is also less than 0.001we find the following.

The first independent variable is insider holding are statistically significantly at 10% level
(t=--1.73, P<0.01) with every one point and it partial slope is (-0.7479) negative sign
show that direction of relationship Insider holding has negative relationship to dependent
variable Debt to equity, thevalue 0.7479 show that the strength, insider holding decrese

the 0.7479 in result debt to equity is increase 1 unit.

The second independent variable is log board size are statistically significantly at 10%
level (t=-2.99, P<0.001) with every one point and it partial slope is (-3.246) negative sign
show that direction of relationship log board size has negative relationship to dependent

variable Debt to equity, The value 3.246 show that the strength, log board size decrese the
3.246 in result debt to equity is increase 1 unit.

The third independent variable is Log total assets are statistically significantly at 10%
level (t=3.27, P<0.001) with every one point and it partial slope is (0.60) positive sign
show that direction of relationship log total assets has positive relationship to dependent
variable Debt to equity, The value 0.60 show that the strength, log total assets increase

the 0.60 in result debt to equity is increase 1 unit.

The fourth independent variable is ROA are statistically significantly at 10% level
(t= -5.09, P<0.001) with every one point and it partial slope is (-5.943) negative sign
show that direction of relationship ROA has negative relationship to dependent variable
Debt to equity, The value 5.943 show that the strength, log board size decrese the 5.943

in result debt to equity is increase 1 unit.

The fifth variable Dividend are statistically insignificantly at 10% level

(t = 1.44, P < 0.15)

The sixth variable instutional holding is also statistically insignificantly at 10% level

(t= -1.73, P<0.8846)

The seventh variable Ned is also statistically insignificantly at 10% level (t= 0.72,
P<0.472).

At the discuss the adjusted R2 this value tell the prediction power of the model and our model R2
is 0.44 this value tell that 44% variation is predicted in leverage as from to independent variable.