THE INTERPRETATION OF COEFFICIENTS IN MODELS WITH QUALITATIVE DEPENDENT-VARIABLES

A substantial body of empirical accounting, finance, management, and marketing research utilizes single equation models with discrete dependent variables. Generally, the interpretation of the coefficients of the exogenous variables is limited to the sip and relative magnitude. This paper presents three methods of interpreting the coefficients in these models. The first method interprets the coefficients as marginal probabilities and the second method interprets the coefficients as elasticities of probability. The third method utilizes sensitivity analysis and examines the effect of hypothetical changes in exogenous variables on the probability of choice. This paper applies these methods to a published research study.