Modeling and Interpreting Regressions with Interactions
Journal of Accounting Literature. June 2019. Volume 42: 61-79.
Posted: 8 Aug 2018 Last revised: 8 Aug 2019
Date Written: September 15, 2018
This study examines the use of linear regressions that include interaction terms, finding frequent interpretation errors in published accounting research. We provide insights on how to estimate, interpret, and present interactive regression models, and explain seldom-used but easily-implemented methods to report conditional marginal effects. We also examine the use of interaction terms in tax and financial reporting trade-off studies, evaluating the conceptual fit between a regression model with interactions and alternative definitions of trade-off. Although we advocate the use of interactive models, noise levels common in accounting research greatly reduce the ability to detect interaction effects.
Keywords: Interactive, Interaction, Trade-Off, Conditional Effect, Moderating, Tax
JEL Classification: C18, C31, H20, M40
Suggested Citation: Suggested Citation