Applying the Fractional Response Model to Survey Research in Accounting

Susanna Gallani () and Ranjani Krishnan ()
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Susanna Gallani: Harvard Business School, Accounting and Management Unit
Ranjani Krishnan: Eli Broad School of Management, Michigan State University

No 16-016, Harvard Business School Working Papers from Harvard Business School

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 (search for similar items in EconPapers)
JEL-codes: C15 C23 C24 C25 I18 M41 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2015-08, Revised 2017-01
New Economics Papers: this item is included in nep-acc, nep-dcm and nep-ecm
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Citations: View citations in EconPapers (8)

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