The misuse of regression-based x-Scores as dependent variables

Dmitri Byzalov and Sudipta Basu

Journal of Accounting and Economics, 2024, vol. 77, issue 2

Abstract: Researchers often use regression-based x-Scores (e.g., conservatism C-Score, misstatement F-Score) from a stage 1 model as a dependent variable in stage 2. We argue that this x-Score analysis can cause coefficient biases and interpretation problems because (1) x-Score does not capture new sources of variation, and (2) the estimates often hinge on unacknowledged technical assumptions. Instead, we recommend that researchers include the test variables and the relevant controls in stage 1, obviating the need for an x-Score. In replication analyses, some important published findings change after we remove the coefficient bias caused by the use of x-Score as a dependent variable.

Keywords: Two-stage estimation; Exclusion restriction; Functional form; Identification (search for similar items in EconPapers)
JEL-codes: C20 C36 C43 M41 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jaecon:v:77:y:2024:i:2:s0165410123000678

DOI: 10.1016/j.jacceco.2023.101643

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