On the Interpretation of Models Explaining Cross Sectional Differences Among Commercial Banks**

Abstract

A number of studies have recently attempted to explain cross sectional variations in selected characteristics of commercial bank operations through least squares regression analysis.1 Generally, whether the particular study objective was to explain inter bank differences in costs, revenues, profits, or loan rates, several explanatory variables were isolated which varied systematically among banks, and which at least partially explained differences in the dependent variable. The explanatory variables which were shown to be theoretically relevant, and statistically significant, were then interpreted literally and designated as having causal characteristics.