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Control variables in interactive models / Ed deHaan, James Moon, Jonathan Shipman, Quinn Swanquist, and Robert Whited

By: Contributor(s): Material type: TextTextDescription: Vol 8 (2) pages 77-86 : illustrations ; 28 cmUniform titles:
  • Journal of Financial Reporting / Fall 2023
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List(s) this item appears in: Periodical index
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ABSTRACT:

Accounting studies often examine whether the relation between X and Y varies with a moderating variable, M, by including an interactive term, X x M, in a regression. We provide plain-English guidance on why, how, and when to use control variables, Z, in interaction tests. A simulation and simple descriptions demonstrate how interacted controls affect coefficient estimates and interpretations. In particular, we demonstrate how controlling for Z without an accompanying interaction of X x Z and/or M x Z generally does not eliminate the confounding effect of Zon X x M. We conclude with guidance for future research.

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