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International Review of Economics and Finance

8 (1999) 281–292

Board structure, ownership, and financial

distress in banking firms
W. Gary Simpsona,*, Anne E. Gleasonb
a
Deparment of Finance, College of Business Administration, Oklahoma State University,
Stillwater, OK 74078-0555, USA
b
Department of Finance, College of Business Administration, The University of Central Oklahoma,
Edmund, OK 73034, USA
Received 22 August 1997; accepted 5 May 1998

Abstract
This investigation pursues a new direction in the analysis of financial distress in banking
firms. The research was inspired by recent research on corporate governance and the need to
understand the internal processes behind the financial decisions that result in bank failures.
The analysis examined the relationship between the ownership and structure of the board of
directors and the internal control mechanism that influences the survival of the firm. The
following aspects of ownership and governance are investigated: ownership by directors and
officers, ownership by the CEO, number of directors, percentage of inside directors, and CEO
duality. The influence of board structure and ownership on the probability of financial distress
was explored with a sample of approximately 300 banking firms. The empirical tests indicated
a lower probability of financial distress when one person is both the CEO and chairman of
the board, but the other factors did not have a significant effect.  1999 Elsevier Science
Inc. All rights reserved.
JEL classification: G21; G28
Keywords: Corporate governance; Internal control system; Financial distress; Banks

1. Introduction
The emergence of the banking industry from the most serious financial crisis since
the 1930s has resulted in a strengthened deposit insurance fund and a relaxation of
regulatory concern for bank failures. The large amounts of risky credit card debt
recently incurred by banks, however, underscore the point that financial distress in
banking is always an issue (Federal Deposit Insurance Corporation, 1997).

* Corresponding author. Tel.: 405-744-8636; fax: 405-744-5180.

E-Mail address: simpson@okway.okstate.edu (W.G. Simpson)

1059-0560/99/$ – see front matter  1999 Elsevier Science Inc. All rights reserved.
PII: S1059-0560(99)00026-X
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282 W.G. Simpson, A.E. Gleason / International Review of Economics and Finance 8 (1999) 281–292

Financial distress in banking remains a significant issue for owners, managers, and
the public. The incentives for risk-shifting from equity owners to depositors exist in
banking similar to the agency problems caused by the conflict between owners and
debt-holders in other corporations. John, John, and Senbet (1991) argue that risk-
shifting incentives in depository financial institutions arise from the existence of limited
liability for owners and the associated convexity of the levered equity pay-off produced
by the limited liability. The incentives for risk-shifting will exist in spite of risk-adjusted
deposit insurance premiums according to John, John, and Senbet (1991). As a result,
banks with managers closely aligned with the owners would seek risk that is shifted
to depositors and the public insurance fund.
An analysis of bank failures prepared by the Office of the Comptroller of the Currency
(OCC) identified the major immediate cause of many bank failures as poor asset
quality that eventually impaired the bank’s capital position (Office of the Comptroller
of the Currency, 1988). The OCC investigation further concluded that the primary
reason banks encounter asset quality and capital problems is the failure of the board
of directors and management. According to the OCC, the ultimate causes of bank
failures are an uninformed or inattentive board of directors and/or management,
overly aggressive activity by the board and/or management, problems involving the
chief executive officer, and other problems related to board oversight and management
deficiencies. Failure of the board to monitor the activities of management and staff
resulted in poorly followed loan policies, inadequate compliance with internal policies
and banking laws, inadequate problem loan identification, and ineffective asset/liability
management, according to the OCC.
Jensen (1993) argues that the board of directors is crucial to effective internal
control systems: “The problems with corporate internal control systems start with the
board of directors. The board, at the apex of the internal control system, has the final
responsibility for the functioning of the firm. Most importantly, it sets the rules of
the game for the CEO” (p. 862). The ultimate consequence of a dysfunctional corporate
internal control system is the failure of the firm.
A rich and important body of research that addresses the prediction of financial
distress in commercial banks and the classification of banks based on financial stability
has evolved (Demirguc-Kunt, 1989). The present investigation pursues a new direction
in the analysis of bank survival inspired by the research on corporate governance and
the need to understand the processes behind the financial decisions that result in bank
failures.1 The purpose of this analysis is to examine the relationship between the board
structure and ownership of a commercial banking firm and the occurrence of financial
distress in that firm. A set of testable hypotheses was developed from the model
governance structure in Jensen (1993). The hypotheses were tested empirically by
regressing measures of the board structure and ownership of a group of approximately
300 banking firms on an indicator of the probability of financial distress.

2. A model governance structure

Jensen (1993) contends that few boards in the recent past have functioned properly
in the absence of external crises and he provided several proposals that should cause
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the board to become an effective control mechanism. First, board cultures must be
changed to emphasize frankness and truth instead of politeness and courtesy so that
CEOs do not have the influence to control the board and escape scrutiny. Second,
board members must have free access to all relevant information and not just the
information selected by the CEO. Then the board members must have the expertise
to evaluate this information. Third, legal liabilities must be altered so that directors
have the appropriate incentives to take actions that create value for the company,
not reduce the risks of litigation. Fourth, management and board members should
have significant equity holdings in the company to promote value maximization for
shareholders. Fifth, boards should be kept small (seven or eight members) so they
can function more efficiently and not be controlled by the CEO. Similarly, the CEO
should be the only insider because other insiders are too easily influenced by the
CEO. Sixth, the board should not be modeled after the democratic political model
that represents other constituencies in addition to shareholders. Seventh, the CEO
and the chairman of the board should not be the same person. Finally, the role of
investors that hold large debt or equity positions in the company and actively seek
to participate in the strategic direction of the company should be expanded.
Jensen (1993) suggested that LBO associations and venture capital funds provide
a model governance structure that has effectively resolved some of the problems
associated with current corporate control systems. The problems addressed are not
firm failure but slow growth/declining firms and high growth entrepreneurial firms.
The concepts apply to faulty internal control systems in banking firms that result in
financial distress.
The characteristics of LBO associations and venture capital funds that provide a
model for efficient internal corporate controls are:
1. limited partnership agreements at the top level that prohibit headquarters from
cross-subsidizing divisions,
2. large equity ownership by both managers and directors,
3. directors that represent a large fraction of the owners,
4. a small number of directors on the board (eight or less),
5. no management insiders on the board other than the CEO, and
6. the CEO is not the chairman of the board.
The framework offered by Jensen (1993) provides a conceptual framework drawn
from observation that was intuitively appealing and provided the basis for a set of
empirically testable hypotheses.

3. Hypotheses
3.1. Hypothesis I: Management and board member equity ownership
Jensen (1993) suggests that many problems occur because neither managers nor
directors normally own a substantial proportion of the firm’s equity, which decreases
the incentives of directors and officers to pursue the shareholders’ interests. Saunders,
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Strock, and Travlos (1990) provide evidence that banks controlled by stockholders
have incentives to take higher risk than banks controlled by managers. If stockholders
prefer more risk than non-owner managers and stock ownership aligns managers and
directors with owners, then the probability of financial distress in a bank would be
higher when managers and directors own a higher proportion of the equity.
HA: Banks with higher proportions of equity ownership by directors and managers
have higher probabilities of experiencing financial distress, ceteris paribus.

3.2. Hypothesis II: Board size

Jensen (1993) proposed that a smaller number of board members produces a more
effective control mechanism. Changanti, Mahajan, and Sharma (1985) also suggested
that smaller boards play a more important control function whereas larger boards
have difficulty coordinating their efforts which leaves managers free to pursue their
own goals. However, a smaller board might be easier for the CEO to influence and
a larger board would offer a greater breadth of experience. The impact of board size
on the corporate control mechanism is not obvious, but the strongest arguments
suggest that a smaller board would result in closer alignment with shareholder interests,
which would increase risk taking.
HA: Banks with smaller boards have higher probabilities of financial distress than
banks with larger boards, ceteris paribus.

3.3. Hypothesis III: Insiders on the board

Jensen (1993) argued that corporate officers who report to the CEO cannot be
effective monitors because the possibility of retribution is high. Therefore, the officers
of the corporation should not serve on the board. Kesner, Victor, and Lamont (1986)
referred to this point as the “outsider dominance perspective”. To the contrary,
outsiders sometimes do not understand the complexities of the company and are
technically ineffective monitors. When outsiders represent a large number of diverse
interests, they may restrict the economic flexibility of the firm and produce conflicts
between the board and management. It is often suggested that the participation of
outsiders on the board influences the effectiveness of the control function. Weisbach
(1988) and Brickley, Coles, and Terry (1994) present empirical evidence which suggests
that outside directors represent shareholder interests better than inside directors.
HA: Banks with higher percentages of inside directors on the board have lower
probabilities of financial distress, ceteris paribus.

3.4. Hypothesis IV: CEO duality

Jensen (1993) argued that the CEO should not have a dual position as chairman
of the board because the CEO may not separate personal interests from shareholder
interests. The function of the chairman of the board is to conduct board meetings
and supervise the evaluation and compensation of the CEO (Jensen, 1993). The dual
CEO/chairman of the board probably has significantly increased power over the
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board and corporation. This would probably reduce the effectiveness of the control
mechanisms of the governance structure. The issue of CEO duality has received
considerable attention because the practice is commonly observed in many large
corporations (Kesner, Victor, & Lamont, 1986). Supporters argue that CEO duality
provides better strategic vision and leadership than an independent chairman.
HA: The probability of financial distress is lower for a banking firm with a dual
chairman of the board and CEO, ceteris paribus.

3.5. Hypothesis V: CEO equity ownership

A major premise of Jensen (1993) is that the CEO should pursue the interests of
the shareholders. The argument against a combination of the chairman of the board
and the CEO is that the manager will be too powerful and not have interests aligned
with shareholders. The fact that a CEO would be able to control other officers who
were on the board follows the same line of reasoning. A parallel consideration is the
equity ownership position of the CEO. The amount of equity a CEO holds should
increase the alignment of the interests of the CEO with the interests of shareholders.
HA: A banking firm where the CEO has a lower equity ownership position has
a lower probability of financial distress, ceteris paribus.

4. Statistical methodology
4.1. Sample design and data sources
The sample consisted of those banking firms listed in the SNL Quarterly Bank
Digest (SNL Securities, 1993), which also had proxy statements available for 1989.
The sample included only banking firms that were publicly traded because these were
the only firms with publicly available ownership data. The SNL Quarterly Bank Digest
provides data on most publicly traded banking firms and includes approximately 375
firms. Only firms that did not have complete financial data or a proxy statement were
omitted.
The following ownership and board structure measures were taken from 1989 proxy
statements:
1. the percentage equity ownership of all officers and directors as a group,
2. the number of directors on the board,
3. the percentage of insiders on the board,
4. the combination of the CEO and the chairman of the board into one position,
and
5. the percentage equity ownership of the CEO.
A surrogate for financial distress and the control variables were taken from the SNL
Quarterly Bank Digest for the end of the year 1993. This procedure produced a sample
of 287 banking firms with complete information.
The time structure of the regression equations reflects the proposition that the
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effect of ownership and board structure will not be observed immediately in bank
performance but will take three to five years to present. The measures of ownership
and board structure were taken as of the end of the first quarter 1989 because the
proxy information was prepared at that time. The ownership and board structure in
place at the beginning of 1989 was expected to influence the probability of financial
distress at the end of 1993, approximately five years later. The regression equations
are cross-sectional with one lagged independent variable, the measure of ownership
or board structure.
4.2. Tests of hypotheses
The hypothesized relationships were tested with the following ordered logistic
equation:
logit (p2 1 p3 1 p4) 5 a 1 b0GOVi 1 g9xi 1 ei
where
p1 5 Prob(Yi 5 1 | GOVi, xi),
p2 5 Prob(Yi 5 2 | GOVi, xi),
p3 5 Prob(Yi 5 3 | GOVi, xi),
p4 5 Prob(Yi 5 4 | GOVi, xi),
Yi 5 a variable representing the SNL rating of the ith banking firm (1 5 no
risk of financial distress, 2 5 little risk of financial distress, 3 5 some
risk of financial distress, and 4 5 strong risk of financial distress),
GOVi 5 an indicator of ownership or board structure for the ith banking firm,
xi 5 a vector of control variables that will impact the probability that Yi 5 n,
b0 5 a parameter to be estimated,
g9 5 a vector of parameters to be estimated,
a 5 an intercept term, and
ei 5 the error term.
The term logit(p2 1 p3 1 p4) represents cumulative probabilities and the model predicts
the probability of more financial distress with changes in the relevant effects variables.
The logit term on the left hand side of the equation equals log{(p2 1 p3 1 p4)/(1 2
p2 2 p3 2 p4)}, which is the log of the ratio of the cumulative probabilities that a
particular banking firm will have a high level of risk to the cumulative probabilities
that the firm will have no risk of financial distress.
The estimation procedure assumed a common slope parameter associated with the
relevant effects variables and used maximum likelihood regression.2 The relevant
effects vector xi is composed of the variables described in Table 1.
The coefficient of primary interest is b0. The hypothesized relationships between
ownership and board structure and the probability of financial distress in terms of
the regression coefficients are:
H0: HA:
I. Management and board equity ownership b0 < 0 b0 . 0
II. Board size b0 > 0 b0 , 0
III. Insiders on the board b0 > 0 b0 , 0
IV. CEO duality b0 < 0 b0 . 0
V. CEO equity ownership b0 < 0 b0 . 0
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Table 1
Variable definitions and descriptive statistics
Definition of the variable Mean Minimum Maximum SD Sign
Y 5 SNL Safety Rating 1.321 1.000 4.000 0.777
GOV1i 5 common shares 0.164 0.001 0.694 0.141 1
owned by directors and
officers/total common shares
GOV2i 5 number of directors 14.596 4.000 37.000 5.786 2
GOV3i 5 number of insiders on 0.176 0.000 0.800 0.102 2
board/total board members
GOV4i 5 1 if CEO and COB 0.568 0.000 1.000 0.496 1
same person, 0 otherwise
GOV5i 5 common shares 0.0359 0.000 0.621 0.0685 1
owned by the CEO/total
common shares
X1i 5 book value total assets $1.714 bil $70.6 mil $187.6 bil $5.2 bil 2
X2i 5 nonperforming assets/ 0.0190 0.0011 0.2010 0.0235 1
total assets
X3i 5 market value per share/ 1.465 218.750 3.629 1.304 2
book value per share
X4i 5 book value of total 0.082 0.013 0.145 0.018 2
equity capital/total assets
Sign, the hypothesized sign of the regression coefficient in the estimated equations.
SD, Standard Deviation of the variable.

4.3. Empirical variables

One indicator that measures the potential for financial distress for banking firms
is the CAMELS rating developed by federal regulators. Unfortunately, this indicator
is not publicly available. However, SNL Securities calculates an indicator called the
SNL Safety Rating, which is similar to a CAMELS rating. The SNL Safety Rating
measures the risk of each banking firm based on capital adequacy, asset quality, the
risk profile of the loan portfolio, earnings, and value assessed by the stock market.
The SNL Safety Rating goes from A1 to D2, similar to a bond rating. The SNL
Safety Rating was used to proxy the probability of financial distress as follows: A1,
A, and A2 5 1 indicating no risk; B1, B, and B2 5 2 indicating little risk; C1, C,
and C2 5 3 indicating some risk; and D1, D, and D2 indicating strong risk. The
terminology no risk, little risk, some risk, and strong risk follows that used by SNL
Securities. The SNL Safety Rating is highly correlated with the probability of default
measure developed by Thomson (1992).3
The financial distress indicator was hypothesized to be a function of the ownership
and board structure variables in addition to the following control variables:
1. the size of the banking firm measured by total assets,
2. the default risk of the asset portfolio measured by the ratio of nonperforming
assets to total assets,
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3. the risk evaluation of the equity markets measured by the market value/book
value ratio, and
4. financial leverage measured by the book value of equity to book value of total
assets ratio.
The number of control variables was parsimonious by design but the equations show
that most of the variables had high explanatory power.
The calculation of the governance structure variables was straightforward except
for the percentage of insiders on the board. A strict definition of insiders was applied
which included current officers of the banking firm, former officers of the banking
firm, and corporate counsel. Board members were considered insiders only if it was
obvious from the proxy statements.
Table 1 provides a list of all empirical variables with descriptive statistics and the
expected sign of the regression coefficients. The banks with publicly traded stock are
much larger than the average bank as indicated by the average total assets of $1.714
billion for the sample banking firms. All of the firms in the sample were bank holding
companies.

5. Empirical results
5.1. Tests of hypotheses
The maximum likelihood estimates of the ordered logistic regression parameters
reported in Table 2 reveal that the null hypothesis was rejected for Hypothesis IV
but could not be rejected in the other relationships. The parameter estimate indicates
that CEO duality (i.e., when the same person is both the CEO and chairman of the
board) has a significant effect on the future probability of financial distress in a banking
firm. The regression coefficient b0 for Hypothesis IV is positive which indicates that
banking firms where the same person is both the CEO and chairman of the board
have a lower probability of financial distress five years later. This result is consistent
with the theory that a dual CEO-chairman of the board is more likely to have the
ability to pursue his/her personal interests and is less likely to be aligned with the
interests of shareholders who prefer greater risk taking by the firm.
The regression estimates give no indication that ownership is an important influence
on the probability of financial distress in the future. The combined equity ownership
of directors and officers and the individual equity ownership of the CEO did not have
an effect. The percentage of insiders on the board and the number of directors on
the board does not appear to impact future financial distress.4
The relative magnitudes of the standardized regression coefficients suggest that the
governance variables are less important influences on risk than the control variables
representing bank size, the riskiness of the loan portfolio, and the banking firm’s use
of financial leverage.
5.2. Explanatory power of the equations.
The signs of all significant regression coefficients were correct and all of the control
variables were highly significant except the market value to book value ratio. The 22
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Table 2
Maximum likelihood estimates of the ordered logistic equation parameters
Parameters Hypothesis I Hypothesis II Hypothesis III Hypothesis IV Hypothesis V
a (constant) 17.7050 19.6892 18.7043 21.2958 18.7223
(0.00) (0.00) (0.00) (0.00) (0.00)
b0 (GOV1i 2 management 0.0141
and board equity owner- [0.1094]
ship) (0.37)
b0 (GOV2i 2 board size) 0.0575
[0.1831]
(0.19)
b0 (GOV3i 2 insiders on 0.0207
the board) [0.1160]
(0.38)
b0 (GOV4i 2 CEO duality 1.4010
[0.3833]
(0.01)
b0 (GOV5i 2 CEO owner- 0.0400
ship of equity) [0.1512]
(0.19)
b1 (X1i 2 book value 20.8544 21.0168 20.9196 21.1083 20.9062
total assets) [20.7777] [20.9254] [20.8370] [21.0088] [20.8248]
(0.00) (0.00) (0.00) (0.00) (0.00)
b2 (X2i 2 nonperforming 0.9193 0.9215 0.9338 0.9852 0.9219
assets/total assets) [1.1785] [1.8184] [1.1971] [1.2631] [1.1819]
(0.00) (0.00) (0.00) (0.00) (0.00)
b3 (X3i 2 market value per 0.3415 0.3308 0.2899 0.2331 0.3016
share/book value per [0.2454] [0.2377] [0.2084] [0.1676] [0.2167]
share) (0.39) (0.41) (0.56) (0.67) (0.55)
b4 (X4i 2 book value of 21.3247 21.3551 21.3392 21.3992 21.3418
total equity capital/ [21.2145] [21.2424] [21.2278] [21.2828] [21.2302]
total assets) (0.00) (0.00) (0.00) (0.00) (0.00)
Standardized regression coefficients are in brackets. Probabilities for a Wald Chi-square test are in
parentheses.

log likelihood statistic which is distributed as a chi-square distribution was used to

test the null hypothesis that all regression coefficients in the equation are zero. The
results reported in Table 3 confirm that the null hypothesis was rejected.
The explanatory power of the equations as revealed by the R-square statistics
was solid with generalized R-square statistics of approximately 0.55 and adjusted
generalized R-statistics of approximately 0.76.5 The predicted probabilities and ob-
served responses indicate the model was correct in approximately 85 percent of the
cases, incorrect in approximately 2 percent of the cases, and indeterminate in approxi-
mately 13 percent of the cases. The Sommers’ D, which is a summary measure of the
predicted probabilities and observed responses, indicates good explanatory power.
The Chi-square test for the proportional odds assumption indicates the computation
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290 W.G. Simpson, A.E. Gleason / International Review of Economics and Finance 8 (1999) 281–292

Table 3
Statistics for the ordered logistic equations
Statistics Hypothesis I Hypothesis II Hypothesis III Hypothesis IV Hypothesis V
Generalized R-square 0.551 0.552 0.551 0.561 0.552
Adjusted generalized 0.755 0.757 0.755 0.769 0.757
R-square
Proportional odds [14.100] [13.654] [14.800] [12.858] [13.007]
assumption Chi- (0.1685) (0.1894) (0.140) (0.232) (0.223)
square testa
22 log likelihood [229.725] [230.512] [229.636] [230.445] [236.272]
Chi-square testa (0.000) (0.000) (0.000) (0.000) (0.000)
Predicted probabili- 84.5% 86.1% 84.5% 86.2% 84.5%
ties and observed
responses: Concordant
Predicted probabili- 2.3% 2.1% 2.2% 1.9% 2.2%
ties and observed
responses: Discordant
Predicted probabili- 13.2% 11.7% 13.4% 11.9% 13.3%
ties and observed
responses: Tied
Sommers’ D 0.822 0.840 0.823 0.843 0.823
a
The Chi-square statistic is in brackets and the probability is in parentheses.

that assumed a common slope parameter for each explanatory variable was reasonable,
that is, the null hypothesis of common slope parameters could not be rejected at a
normal level of confidence.

6. Conclusion
This investigation indicates that the combination of the CEO and chairman of the
board into one position may influence the internal control system of a banking firm
in such a way as to reduce the probability of financial distress in the firm. The result
that a single powerful manager will reduce the probability of financial distress is
consistent with theory and previous empirical evidence. A manager with significant
control over both operations and the board would not be as susceptible to the influence
of outside directors, and other monitors, that would cause the interests of management
to be more closely aligned with shareholders. A dual CEO–chairman of the board
would be capable of pursuing his/her own interests, which could mean taking less risk
to protect unique human capital.
These results have obvious implications for the regulation of banking firms because
shareholder dominated banks would be more likely to engage in risk-shifting to
depositors and ultimately the FDIC fund. In other words, banks with a combined
CEO-chairman of the board are less likely to require FDIC assistance. Furthermore,
regulatory efforts to influence risk taking by controlling other aspects of basic board
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structure and ownership would not be effective. The evidence of this analysis and the
previous evidence of Saunders, Strock, and Travlos (1990) suggest that the nature of
the internal control mechanism is an important issue for bank regulation.
The fact that other basic indicators of the internal control system were not found
to be significant suggests that the impact of board structure and ownership on banking
firm behavior may be too complex to be captured by simple structural characteristics.
The results of this investigation cannot be seen as the final answer to the question of
how internal control systems function in banking firms, but only a first step. Future
research should strive to penetrate inside the black box of the internal control system
for banking firms to better understand the complex dynamics of corporate decisions.

Acknowledgments
We are grateful to Carl Chen, editor, and an anonymous referee for their patience
and many helpful comments. The authors bear full responsibility for any remaining
errors or omissions.

Notes
1. Brickley and James (1987) empirically tested the proposition that board structure
is related to the effectiveness of the outside market for takeovers in the banking
industry. Saunders, Strock, and Travlos (1990) investigated the relationship be-
tween risk taking in banking firms and their ownership structure. Baysinger and
Butler (1985) found that board independence had a small impact on the future
relative financial performance of a sample of industrial firms. Changanti, Maha-
jan, and Sharma (1985) found that the number of directors on the board is
inversely related to failure in a sample of retail firms but no relationship existed
with other measures of governance structure (e.g., percentage of outside directors
and chairman-CEO duality).
2. The SAS System was used to compute the ordered logit equations. A proportional
odds model was considered to be appropriate. Refer to Peterson and Harrell
(1990) and Greene (1997) for a discussion of ordered logit regressions.
3. The measure of the probability of financial distress in banking firms developed
by Thomson (1992) was an adjusted capital ratio he called NCAPTA. NCAPTA
was calculated for each of the firms in this sample and the correlation coefficient
between the SNL Safety Rating and NCAPTA was 0.84. The SNL Safety Rating
was used because it is partially based on the market value of equity while
NCAPTA considers only the book value of equity. Sinkey (1978) proposed a
measure similar to NCAPTA.
4. Changanti, Mahajan, and Sharma (1985) did not find a significant relationship
between the number of insiders on the board or CEO duality and failure in
retailing firms. They did find that the number of directors was related to failure.
5. The reported R-square is a generalization of the normal coefficient of determina-
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292 W.G. Simpson, A.E. Gleason / International Review of Economics and Finance 8 (1999) 281–292

tion from ordinary least squares regressions (Magee, 1990). Nagelkerke (1991)
developed the adjustment to the generalized R-square. Green (1997) indicates
there is no exact counterpart to the standard regression R-square in the general-
ized regression model and points out the limitations of the generalized coefficients
of determination.

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