The Interpretation of Coefficients in N-Chotomous Qualitative Response Models
37 Pages Posted: 21 Jan 1998
Date Written: January 1998
Researchers in financial accounting often use qualitative response models in choice-based empirical research. Most of this research relies on the familiar techniques of dichotomous probit or logistic regression. Only a limited amount of this research uses n-chotomous qualitative response models such as ordered probit or multinomial logistic regression. The explanation for this limited use is that the interpretation of model coefficients differs substantially from OLS regression and econometric texts do not provide a systematic approach to coefficient interpretation. This paper discusses several approaches to interpreting coefficients of n-chotomous qualitative response models. These methods focus on partial derivatives, elasticities of probability, and sensitivity analysis. The methods are applied to the models presented in Thomas (1989) and Mittelstaedt (1989). The methods provide a better understanding of the directional effects of model coefficients, the relative responsiveness of the probability of choice to changes in the independent variables, and the effects of changes in the independent variables on the probability of choice. These methods should make these models more attractive to researchers interested in choice-based financial accounting research and allow for a broader range of decision outcomes than that provided by dichotomous qualitative response models.
JEL Classification: C25, M41
Suggested Citation: Suggested Citation