Divided we fall: How ratios undermine research in strategic management

S. Trevis Certo, John R. Busenbark, Matias Kalm, Jeffery A. LePine

Research output: Contribution to journalArticleScientificpeer-review

Abstract

Despite scholars’ admonitions regarding the use of ratios in statistical analyses, the practice is common in management research. This is particularly true in the area of strategic management, where important variables of interest are operationalized as ratios. In this study, we employ simulations to demonstrate the implications of using ratios in statistical analyses. Our simulations illustrate that ratio variables produce inaccurate parameter estimates and can result in lower levels of statistical power (i.e., the ability to uncover hypothesized relationships). We also find that when an independent or a dependent variable is a ratio, the relationship between the independent and dependent variable fluctuates as the dispersion of the denominator changes. These fluctuations occur even when the correlations between the unscaled variables remain exactly the same. We also find that including ratios in models as control variables influences estimates of relationships between focal independent and dependent variables. This is true even when neither the independent or dependent variable is a ratio. We provide several recommendations for researchers who may be interested in avoiding the pitfalls of ratio variables.
Original languageEnglish
Pages (from-to)211-237
JournalOrganizational Research Methods
Volume23
Issue number2
Early online date2018
Publication statusPublished - 2020

Fingerprint Dive into the research topics of 'Divided we fall: How ratios undermine research in strategic management'. Together they form a unique fingerprint.

  • Cite this