Business Statistics

510 Business Statistics

15.4.2 Adjusted R 

2

While computing the coefficient of multiple determination R

2

, we use the formula

2

SSR SSE

1

SST SST

= = −R

If we add independent variables in the regression analysis, the total sum of squares will not

change. Inclusion of independent variables is likely to increase SSR by an amount, which may result

in an increase in the value of R

2

. In some cases, additional independent variables do not add any new

information to the regression model though it increases the value of R

2

. In this manner, sometimes,

we may obtain an inflated value of R

2

. This difficulty can be solved by taking adjusted R

2

into account ...