Control Variables in Interactive Models
20 Pages Posted: 10 Nov 2021 Last revised: 2 Mar 2023
Date Written: March 1, 2023
Abstract
Accounting studies often examine whether the relation between X and Y varies with a moderating variable, M, by including an interactive term, 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 including Z without an accompanying interaction of X×Z or M×Z generally does not eliminate the confounding effect of Z on X×M. We conclude with guidance for future research.
Keywords: Accounting Research, Interactions, Control Variables
JEL Classification: M40,M41,M42,C01
Suggested Citation: Suggested Citation