Modeling and interpreting regressions with interactions

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 meth...

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Bibliographic Details
Published in:Journal of accounting literature 2019-06, Vol.42 (1), p.61-79
Main Authors: Burks, Jeffrey J., Randolph, David W., Seida, Jim A.
Format: Article
Language:English
Subjects:
Accounting
Conditional effect
Economic models
Expected values
Incentives
Income shifting
Interaction
Interactive
Moderating
Noise
Regression analysis
Researchers
Simulation
Statistical significance
Studies
Tax
Tax incentives
Taxable income
Trade-off
Variables
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Summary: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.
ISSN:0737-4607
2452-1469
DOI:10.1016/j.acclit.2018.08.001