DOI: 10.2308/jfr-2021-023 ISSN: 2380-2154

Control Variables in Interactive Models

Ed deHaan, James R. Moon, Jonathan E. Shipman, Quinn T. Swanquist, Robert L. Whited
  • Pharmacology (medical)


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 controlling for Z without an accompanying interaction of X × Z and/or M × Z generally does not eliminate the confounding effect of Z on X × M. We conclude with guidance for future research.

Data Availability: Stata code to produce the simulations in this paper is available, as linked in the text.

JEL Classifications: M40; M41; C01; C18.

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