Journal article
On the Use of Residuals as Dependent Variables
Journal of financial reporting (Sarasota, Fla.), Vol.7(1), pp.69-83
03/01/2022
DOI: 10.2308/JFR-2021-008
Abstract
We discuss some pitfalls associated with using residuals as dependent variables in accounting research. We provide basic intuition for why the typical implementation of this procedure generates biased coefficients and standard errors that can lead to incorrect inferences with both type I and type II errors. We illustrate model specification issues associated with estimating regressions in two steps versus one and discuss possible over-specification and the use of fixed effects. We provide Stata code and sample data to help illustrate and understand this bias and conclude with concrete guidance for researchers and reviewers of archival research.
Details
- Title: Subtitle
- On the Use of Residuals as Dependent Variables
- Creators
- Wei Chen - University of ConnecticutPaul Hribar - University of IowaSamuel J. Melessa - Univ Nebraska, Coll Business, Dept Accounting, Lincoln, NE USA
- Resource Type
- Journal article
- Publication Details
- Journal of financial reporting (Sarasota, Fla.), Vol.7(1), pp.69-83
- Publisher
- Amer Accounting Assoc
- DOI
- 10.2308/JFR-2021-008
- ISSN
- 2380-2154
- eISSN
- 2380-2146
- Number of pages
- 15
- Grant note
- Tippie College of Business, The University of Iowa College of Business, University of Nebraska School of Business, University of Connecticut
- Language
- English
- Date published
- 03/01/2022
- Academic Unit
- Accounting
- Record Identifier
- 9984380701702771
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