Table 1

One-Sample Kolmogorov-Smirnov Test

NS EPS BV PECEPS PBIDTS SNA
N 40 40 40 40 40 40
Mean 8.9423 69.4905 356.3315 20.9490 35.0668 1.6173
Normal
Std. 10.56604 58.74498 351.87493 11.71262 24.76989 2.37554
Parametersa,b
Deviation
Absolute .165 .164 .240 .092 .187 .292
Most Extreme
Positive .114 .164 .240 .092 .187 .292
Differences
Negative -.165 -.149 -.166 -.061 -.141 -.259
Kolmogorov-Smirnov Z 1.043 1.035 1.518 .579 1.182 1.845
Asymp. Sig. (2-tailed) .227 .234 .020 .891 .122 .002

In above test all the variable such as NS, EPS, PECEPS, PBIDTS, SNA are normally
distributed except BV because its value is < 0.05.

The variables were also tested using a Q-Q plot, as shown in Appendix 1. The
variables that were not normal were not considered for further analysis. The six
independent variables considered for final analysis are presented in Table 1. The six
ratios are mostly the valuation ratios, which generally determine the value of share
in the stock market. As a matter of fact, the dependent variable or outcome is a
dichotomous one, and, hence, has been rated GOOD = 1 and POOR = 0 to signify the
investment choice. Out of to 40 samples, 21 have been classified as poor and 19 as
good.

Table 2

Dependent Variable
Encoding
Original Internal
Value Value
POOR 0
GOOD 1
The estimated results of the logistic regression model of the stock price return
performance, along with the whole sample, are summarized in Table 3. The final
logistic regression equation is estimated by using the maximum likelihood estimation
for classifying a company:
Z= -8.130 + -0.101 * NS + -0.002*EPS + 0.006 * BV + 0.448 * PECEPS + -0.036 *
PBIDTS + -0.897 * SNA ,

where

z= log (p/1-p),
and ‘p’ is the probability that the outcome is GOOD.
In the above equation, it is possible to classify a company by calculating Z values. P
values can be obtained from Z values. If the P value is higher than 0.5, then the stock
was classified as good; and, if it is lower than 0.5, then the stock was classified as
poor.

Table 3

(Using SPSS)
Variables in the Equation
B S.E. Wald df Sig. Exp(B)
NS -.101 .054 3.479 1 .062 .904
EPS -.002 .014 .023 1 .879 .998
BV .006 .003 5.524 1 .019 1.006
PECEP .448 .161 7.741 1 .005 1.565
Step
S
1a
PBIDTS -.036 .032 1.272 1 .259 .965
SNA -.897 .398 5.078 1 .024 .408
Constan -8.130 3.193 6.484 1 .011 .000
t
a. Variable(s) entered on step 1: NS, EPS, BV, PECEPS, PBIDTS,
SNA.
The following classification table helps to assess the performance of the model by
cross-tabulating the observed response categories with the predicted response
categories.
For each case, the predicted response is the category treated as 1, if that category's
predicted probability is greater than the user-specified cutoff. The cutoff value is
taken at 0.5.

Table 4

Classification Tablea
Observed Predicted
PER Percentage
POOR GOOD Correct

POOR 17 4 81.0
PER
Step GOOD 3 16 84.2
1 Overall 82.5
Percentage
a. The cut value is .500

This table shows the comparison of the observed and the predicted performance of
the companies and the degree of their prediction accuracy. It also shows the degree
of success of the classification for this sample. The number and percentage of cases
correctly classified and misclassified are displayed. It is clear from this table that the
poor companies have a 81% correct classification rate, whereas good companies
have a 84.2% correct classification rate. Overall, correct classification was observed
in 82.5% of original grouped cases.
The plot of the distribution of the firms against the probability is shown above. The
graph shows another method to evaluate right and wrong predictions by plotting
POOR (P) and GOOD (G) status.

The cutoff probability for the decision taken is 0.5 (or 50%). Thus, using this cutoff
value, any company whose score is higher than 0.5 would be predicted to be a good
performing company, and any company with a score less than 0.5 would be classified
as a poor performing company. However, there may be times when one would want
to adjust this cutoff value. Neter et al. [1996] suggest three ways to select a cutoff
value for predicting:
 Use the standard 0.42 cutoff value.

 Determine a cutoff value that will give the best predictive fit for the sample
data. This is usually determined through trial and error.

 Select a cutoff value that will separate the sample data into a specific
proportion of the two states, based on a prior known proportion split in the
population.

Test of Goodness of Fit:

The present study also estimated the Hosmer and Lemeshow statistic, which
provides useful information about the calibration of the model. The observed
significance level for chi-square value is found to be 0.673 (Hosmer and Lemeshow
test), which indicates acceptance of the null hypothesis of the model, meaning there
is not much difference between observed and predicted values. This result shows
that the model appears to fit the data reasonably well. The chi-square value (5.768)
of this model at the 0.01 significance level indicates that logistic regression is very
meaningful, in accordance with the dependent variable relating to each specified
independent variables.

Table 5

(Using SPSS)
Hosmer and Lemeshow Test
Step Chi- df Sig.
square
1 5.768 8 .673

The omnibus tests are the measures of how well the model performs. They test
whether the explained variance in a set of data is significantly greater than the
unexplained variance, overall.

Table 6

(Using SPSS)

Omnibus Tests of Model Coefficients

Chi- df Sig.
square
Step 28.197 6 .000
Step Block 28.197 6 .000
1 Mode 28.197 6 .000
l

If the step were to remove a variable, the exclusion makes sense if the significance of
the change is large (i.e., greater than 0.10).
If the step were to add a variable, the inclusion makes sense if the significance of the
change is small (i.e., less than 0.05).

Appendix 1