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The Effects of Cross-Sectional Scale Differences on Regression Results in Empirical Accounting Research
By Mary Barth, Sanjay Kallapur
Contemporary Accounting Research | January 1996
Citation
Barth, Mary., Kallapur, Sanjay. The Effects of Cross-Sectional Scale Differences on Regression Results in Empirical Accounting Research Contemporary Accounting Research .
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Contemporary Accounting Research, 1996
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Abstract
This study investigates coefficient bias and heteroscedasticity resulting from scale differences in accounting levels-based research designs analytically and using simulations based on accounting data. Findings indicate that including a scale proxy as an independent variable is more effective than deflation at mitigating coefficient bias, even if the proxy is 95 percent correlated with the true scale factor. In fact, deflation can worsen coefficient bias. Also, deflation often does not noticeably reduce heteroscedasticity and can decrease estimation efficiency. White (1980) standard errors are close to the true ones in regressions using undeflated variables. Replications of specifications in three recent accounting studies confirm the simulation findings. The findings suggest that when scale differences are of concern, accounting researchers should include a scale proxy as an independent variable and report inferences based on White standard errors.
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Sanjay Kallapur

Sanjay Kallapur is a Professor of Accounting at the Indian School of Business (ISB). He joined ISB in 2005 from the Krannert School of Management, Purdue University, where he was a tenured Associate Professor.

Professor Kallapur conducts research on financial and managerial accounting, auditing, corporate governance, and risk management. He has published in each of the top three accounting journals, and his papers have been cited over 4,000 times (Google Scholar) and in regulatory policy documents in India and the UK. The American Accounting Association recently published his monograph on scientific inference in accounting research, beyond the use of p-values.

He is the founding Editor-in-Chief of Accounting Theory and Practice, a research journal focusing on India, published by Elsevier. He has been an editor of The Accounting Review from 2008 to 2011, the first person from outside North America to be appointed to that position.

Professor Kallapur is a member of National Financial Reporting Authority (NFRA), the regulatory body overseeing the accounting and auditing of listed companies in India. He is an independent director on the Board of IDBI Bank, where he serves on the risk management and audit committees. He previously served on the Board of the Life Insurance Corporation of India.

Professor Kallapur has held positions as Associate Dean and Deputy Dean for almost a decade at ISB. He started the PhD-equivalent Fellow Programme in Management at ISB and has placed his students in faculty positions at the London School of Economics, IESEG Paris, Aalto University, University of Queensland, University of Western Australia, and IIM Udaipur.

Professor Kallapur has a PhD in Business Economics from Harvard Business School, and B.Com. and M.M.S. degrees from Mumbai University. He is professionally qualified as a Fellow Member of the Institute of Cost Accountants of India (FCMA).

Sanjay Kallapur