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Applying the Fractional Response Model to Survey Research in Accounting

45 Pages Posted: 13 Aug 2015 Last revised: 10 Jan 2017

Susanna Gallani

Harvard Business School

Ranjani Krishnan

Michigan State University - Department of Accounting & Information Systems

Date Written: January 8, 2017

Abstract

Survey research studies make extensive use of rating scales to measure constructs of interest. The bounded nature of such scales presents econometric estimation challenges. Linear estimation methods (e.g. OLS) often produce predicted values that lie outside the rating scales, and fail to account for nonconstant effects of the predictors. Established nonlinear approaches such as logit and probit transformations attenuate many shortcomings of linear methods. However, these nonlinear approaches are challenged by corner solutions, for which they require ad hoc transformations. Censored and truncated regressions alter the composition of the sample, while Tobit methods rely on distributional assumptions that are frequently not reflected in survey data, especially when observations fall at one extreme of the scale owing to surveyor and respondent characteristics. The fractional response model (FRM) (Papke and Wooldridge 1996, 2008) overcomes many limitations of established linear and non-linear econometric solutions in the study of bounded data. In this study, we first review the econometric characteristics of the FRM and discuss its applicability to survey-based studies in accounting. Second, we present results from Monte Carlo simulations to highlight the advantages of using the FRM relative to conventional models. Finally, we use data from a hospital patient satisfaction survey, compare the estimation results from a traditional OLS method and the FRM, and conclude that the FRM provides an improved methodological approach to the study of bounded dependent variables.

Keywords: Fractional response model, bounded variables, simulation

JEL Classification: C23, C24, C25, C15, I18, M41,

Suggested Citation

Gallani, Susanna and Krishnan, Ranjani, Applying the Fractional Response Model to Survey Research in Accounting (January 8, 2017). Harvard Business School Accounting & Management Unit Working Paper No. 16-016. Available at SSRN: https://ssrn.com/abstract=2642854 or http://dx.doi.org/10.2139/ssrn.2642854

Susanna Gallani (Contact Author)

Harvard Business School ( email )

Soldiers Field
Boston, MA 02163
United States

Ranjani Krishnan

Michigan State University - Department of Accounting & Information Systems ( email )

270 North Business Complex
East Lansing, MI 48824-1034
United States
517-353-4687 (Phone)
517-432-1101 (Fax)

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