NWTA = net worth to total assets as a measure of equity or financial strength.
However, due to potential multi-collinearity problems analyses were presented with omission of ownership structure (SSTOCK, FEDERAL), large liabilities to earning assets (LLEA and LLEAC), Net Worth (NWTA, NWTAC) and combinations of these variables.
In some instances Benston (1985) did not simultaneously test for combined effect on nominal levels and changes in variables such as NWTA, LLEA, BRKDEA, however, we choose to retain both the nominal and percentage changes in the regression to capture any interactions.
Net worth to total assets (NWTA) and return on total assets (RETTA) were found to be consistently, inversely related to failure at the .01 level of significance.
In regressions [TABULAR DATA FOR TABLE 5 OMITTED] (4) and (5), when NWTA, NWTAC, LLEA, and LLEAC are excluded from the regressions, change in return on total assets (RETTAC) becomes significantly and positively related to failure.
The change in large liabilities to earning assets (LLEAC) is found to be significantly and negatively related to failure only in the regression in which NWTA and NWTAC are excluded.
NWTA and RETTA are consistently, inversely related to failure at the .01 level of significance for each time period.