Abstract

http://ssrn.com/abstract=2347505
 


 



Modeling and Interpreting Interactions in Tradeoff Research


Jeffrey J. Burks


University of Notre Dame

David W. Randolph


Xavier University

Jim A. Seida


University of Notre Dame - Department of Accountancy

October 30, 2013


Abstract:     
We examine the use of interaction terms in studies of tax-based tradeoffs that managers face in financial reporting choices. Interactions allow the researcher to test whether the rate at which firms trade tax benefits for financial reporting benefits is dependent on the magnitude of the benefits. Although we focus on a tax setting, many of our insights apply to research designs that utilize interaction terms. We begin by defining the term tradeoff and distinguish a linear-additive model, with no interactions, from a linear-multiplicative model. We then discuss statistical issues that affect the interpretation and design of multiplicative models. Although we advocate the use of multiplicative models in tradeoff research, we show via simulation that noise levels common in tradeoff research greatly reduce the ability to statistically detect interaction effects. Given the difficulty of detecting interaction effects, we discuss potential solutions and the need to provide a balanced discussion of unconditional and conditional effects so readers appreciate that Type II error may be hiding systematic differences in an effect across firms.

Number of Pages in PDF File: 49

Keywords: tradeoff, tax, non-tax costs, interaction, linear-multiplicative

JEL Classification: M40, C50, H25

working papers series





Download This Paper

Date posted: October 31, 2013  

Suggested Citation

Burks, Jeffrey J. and Randolph, David W. and Seida, Jim A., Modeling and Interpreting Interactions in Tradeoff Research (October 30, 2013). Available at SSRN: http://ssrn.com/abstract=2347505 or http://dx.doi.org/10.2139/ssrn.2347505

Contact Information

Jeffrey J. Burks
University of Notre Dame ( email )
Mendoza College of Business
Notre Dame, IN 46556-5646
United States
David W. Randolph
Xavier University ( email )
3800 Victory Parkway
ML 1211
Cincinnati, OH 45207
United States
5137451088 (Phone)
Jim A. Seida (Contact Author)
University of Notre Dame - Department of Accountancy ( email )
Mendoza College of Business
Notre Dame, IN 46556-5646
United States
574-631-9496 (Phone)
574-631-5255 (Fax)
Feedback to SSRN


Paper statistics
Abstract Views: 233
Downloads: 71
Download Rank: 200,446

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo7 in 0.297 seconds