Logistic Regression Results

The LOGISTIC Procedure

Model Information Data Set Response Variable Number of Response Levels Model Optimization Technique

09:24 Sunday, February 26, 2012

WORK.SORTTEMPTABLESORTED Bankruptcy 2 binary logit Fisher's scoring

Number of Observations Read Number of Observations Used

700 700

the number of firms observed is 700 while the number of firms used in the logistic analysis is 700. hence there are no missing observations.

Response Profile Ordered Total Value Bankruptcy Frequency 1 0 2 1

517 183

The variable bankruptcy is treated as a dependent variable with two groups or categories- Yes (coded as 1) and No (coded as 0). the observed number of bankrupt firms and non bankrupt firms are 183 and 517 respectively.

Probability modeled is Bankruptcy='1'.

Class Level Information Class Value
1 0 0 0 -1
Education of the founder is a categorical independent variable and hence is being treated as a classification variable. The Education of the founder is categorized into 5 groups (check them from the case study) and SAS uses dummies for them. SAS is considering the 5th category as a base/ reference category. Its effect will be visible in the constant. All the other categories of education of the founder have to be compared in reference to the base category.

Design Variables
0 1 0 0 -1 0 0 1 0 -1 0 0 0 1 -1

Education of Founder 1 2 3 4 5

Model Convergence Status

Convergence criterion (GCONV=1E-8) satisfied.

Generated by the SAS System ('Local', W32_VSHOME) on February 26, 2012 at 09:27:01 AM

Logistic Regression Results

The LOGISTIC Procedure
Model Fit Statistics Intercept Intercept and Criterion Only Covariates AIC SC -2 Log L
806.364 810.915 804.364 573.564 628.176 549.564

09:24 Sunday, February 26, 2012

This table indicates the effectiveness of prediction. Although a true R -square value cannot be computed, R-Square 0.3051 Max-rescaled R-Square 0.4467 so-called pseudo R-square values can be estimated. SAS Enterprise Guide provides two such estimates. What is named R-Square in the table, with a value of .3051, is the Cox and Snell estimate. The statistic named Max-rescaled R-Square, Testing Global Null Hypothesis uses a chi-square with a value of .4467, is the Nagelkerke estimate. Testing Global Null Hypothesis: BETA=0 procedure to test the statistical significance of the Both are interpreted in the same way as an R -square, i.e., model, analogous to the analysis of variance procedure they estimates the amount of dependent variable variance Test Chi-Square DF Pr > ChiSq for linear regression. All three tests agree in indicating accounted for by the model. For example, based on the that our prediction of firm's characterization as bankrupt Nagelkerke pseudo R-square value, we would say that is the model accounted for approximately 44.67% of the Likelihood Ratio 254.8007 11 <.0001 or non bankrupt.01,better than chance, at a level of significance of .05 or .10. variance of how firm's were characterized as bankrupt or non bankrupt.

Score Wald

203.8670 125.6162

11 11

<.0001 <.0001

Type 3 Analysis of Effects Effect Firm's Age Average Tenure with Size of the Firm in Performance Based Pa Debt to Equity Ratio Payables in Lakhs Inventory in Lakhs Education of Founder Wald DF Chi-Square Pr > ChiSq
1 1 1 1 1 1 1 4 4.0740 60.8880 20.5385 1.0098 5.3402 30.6344 0.4562 2.6617 0.0435 <.0001 <.0001 0.3150 0.0208 <.0001 0.4994 0.6159

Generated by the SAS System ('Local', W32_VSHOME) on February 26, 2012 at 09:27:01 AM

Logistic Regression Results

The LOGISTIC Procedure
Analysis of Maximum Likelihood Estimates Parameter Intercept Firm's Age Average Tenure with Size of the Firm in Performance Based Pa Debt to Equity Ratio Payables in Lakhs Inventory in Lakhs Education of Founder Education of Founder Education of Founder Education of Founder 1 2 3 4 DF Estimate
1 1 1 1 1 1 1 1 1 1 1 1 -1.3002 0.0355 -0.2607 -0.1054 -0.00782 0.0707 0.6250 0.0530 -0.2903 0.0174 0.0624 -0.3754

09:24 Sunday, February 26, 2012

Standard Wald Error Chi-Square Pr > ChiSq

0.6634 0.0176 0.0334 0.0233 0.00779 0.0306 0.1129 0.0785 0.3191 0.3209 0.3551 0.4291 3.8407 4.0740 60.8880 20.5385 1.0098 5.3402 30.6344 0.4562 0.8275 0.0029 0.0309 0.7655 0.0500 0.0435 <.0001 <.0001 0.3150 0.0208 <.0001 0.4994 0.3630 0.9568 0.8605 0.3816

From this table it is evident that the independent variables Firm's age, average tenure, size of the firmdebt equity ratio and payables in lakh are all significant at 10% level of significance. Also the classification variable that is education level of the founder is not significant even at 10% level of significance.

Odds Ratio Estimates Effect Firm's Age Average Tenure with Size of the Firm in Performance Based Pa Debt to Equity Ratio Payables in Lakhs Inventory in Lakhs Education of Founder 1 vs 5 Education of Founder 2 vs 5 Education of Founder 3 vs 5 Education of Founder 4 vs 5 Point Estimate
1.036 0.771 0.900 0.992 1.073 1.868 1.054 0.416 0.566 0.592 0.382

95% Wald Confidence Limits

1.001 0.722 0.860 0.977 1.011 1.497 0.904 0.033 0.045 0.046 0.028 1.072 0.823 0.942 1.007 1.140 2.331 1.230

In this table we will consider the odds of only those variables which are significant. For example- for a 1 unit change in the firm's age the odds of the firm going bankrupt increases by 1 times (i.e. 1.036). Intepretation shold be only for significant variables. Also check for the sign of the variable from the above table. For example avarage tenure of board members with the firm had a negative beta coefficeint (-.2607) in the above table. so interpret it as follows- for a one unit chage in the average tenure of board members with the firm, the odds of firm going bankrupt decreases by three fourth times (i.e., .771).

5.257 Suppose if Education of the founder 1 was 7.159 the above table, then we can interpret it as 7.630 of the founder level 1 with respect to the 5.226 times (i.e., .416).
significant at 10% level of significance from follows- For a one unit change in the education education of the founder of the 5th category the odds of a firms ging bankrupt decreases by half

Generated by the SAS System ('Local', W32_VSHOME) on February 26, 2012 at 09:27:01 AM

Logistic Regression Results

The LOGISTIC Procedure
Association of Predicted Probabilities and Observed Responses Percent Concordant Percent Discordant Percent Tied Pairs
86.0 Somers' D 0.722 13.9 Gamma 0.1 Tau-a 94611 c 0.723 0.279 0.861

09:24 Sunday, February 26, 2012

Partition for the Hosmer and Lemeshow Test Bankruptcy = 1 Bankruptcy = 0

Group Total Observed Expected Observed Expected 1 2 3 4 5 6 7 8 9 10

70 70 70 70 70 70 70 70 70 70 0 2 4 7 4 18 24 24 43 57 0.25 1.14 3.02 6.00 10.04 15.13 21.61 29.55 39.71 56.54 70 68 66 63 66 52 46 46 27 13 69.75 68.86 66.98 64.00 59.96 54.87 48.39 40.45 30.29 13.46

The data set has been divided into portions (10 segments or groups in this case) representing increasing likelihoods of firms identifying themselves as bankrupt (first set of columns) and decreasing likelihoods of firms identifying themselves as non bankrupt (last set of columns). The observed and expected count (frequency) for each type of firm is shown for each segment.For example in segment 5 out of the 70 firms which have been considered, 4 are observed to be bankrupt while the expected number of firms that should have been bankrupt is 10. Also the number of firms out of 70 which were observed to be non bankrupt are 66 while the expected are 59.96. The test for the overall model based on all of the segments combined is what we see in the next table. With 10 segments for the two types of firms (bankrupt or non bankrupt), we have 8 degrees of freedom, or 8 df (we lose 1 df for each firm type, i.e. bankrupt or non bankrupt). Thus, the chi-square is tested with8 df in the next table.

Hosmer and Lemeshow Goodness-of-Fit Test Chi-Square

non bankrupt

DF Pr > ChiSq
8 0.3268

This test assesses whether the predicted probabilities of how firms were characterized as bankrupt or non bankrupt based on the model match the observed probabilities. A chi-square statistic is used to test this, and a nonsignificant result means that the model predictions and the data are in accord (this is a desirable outcome).

9.1866

bankrupt

Classification Table Correct Incorrect Percentages

Prob NonNonSensi- Speci- False False Level Event Event Event Event Correct tivity ficity POS NEG 0.500
89 476 41 94 80.7 48.6 92.1 31.5 16.5

After setting the critical probability values at 0.500 it was observed that taking into account the five significant variables at 10% level of signifiance like firm' s age, avg tenure of the board members with the firm, size of the firm, debt to equity ratio and payables in lakh (out of a total of 700 firms) 89 firms and 476 firms were correctly classified as bankrupt and non bankrupt respectively while 41firms and 94 forms were incorrectly classified respectively. the percentage of correct classification is 80.7%.

Generated by the SAS System ('Local', W32_VSHOME) on February 26, 2012 at 09:27:01 AM