Abstract
The Forum will discuss the basic viewpoints required to model input-output systems or dominant rules for explaining the output of business in several input variables. For this purpose, illustrative financial data analyses are used as a case study. First, we will introduce that static law of business is described in the form that contains the error to a simple proportional relationship such as labor productivity. Then, the law should be noted that it is modified through appropriate classification. In addition, for description of the dynamic law, it shows that a simple approach is to model the structure of the historical difference data of inputs and the corresponding output. Though the residual distribution after fitting these models may be usually subject to fat tailed distribution, appropriate deletion of the outlying data group will be necessary and useful in case that variation of the outlying data that are considered as the data from frontiers of high or low business performances is caused by systematic effects of the original input variables. The rank logit model can be utilized to identify such systematic effects effectively. Finally, it is possible to extend a single equation model to simultaneous equation models to describe more realistic business models contributing to the improvement of the key performance indices including the financial performance as revenue.
