A New Method for Assessing the Construct Validity of Accounting Measures: Looking Where the Action is

48 Pages Posted: 12 May 2020 Last revised: 23 Nov 2020

See all articles by Cristi A. Gleason

Cristi A. Gleason

University of Iowa - Department of Accounting

Bradford F. Hepfer

Texas A&M University - Department of Accounting

W. Bruce Johnson

University of Iowa - Department of Accounting

Sam Melessa

University of Iowa - Department of Accounting

Date Written: November 2020

Abstract

We propose and demonstrate a new method for validating proxies for accounting constructs. Our method consists of first identifying high-value observations, which are those statistically most responsible for generating a coefficient of interest, and second determining whether those observations exhibit accounting attributes consistent with theory. This method allows researchers to validate proxies for key theoretical constructs by testing whether high-value observations contain the accounting attributes implied by the theory and lack attributes that run counter to the theory. The method also allows researchers to identify potentially confounding factors and to address alternative explanations for primary results. We demonstrate the method by assessing the validity of two measures for conditional accounting conservatism. However, the method applies generally to large-sample settings and is flexible in its application to key coefficients. We also demonstrate how researchers can compare alternative measures of the same construct to select the best measure for their research context.

Keywords: construct validity, high-value observations, measurement

JEL Classification: M40, M41, C20

Suggested Citation

Gleason, Cristi A. and Hepfer, Bradford F. and Johnson, W. Bruce and Melessa, Sam, A New Method for Assessing the Construct Validity of Accounting Measures: Looking Where the Action is (November 2020). Available at SSRN: https://ssrn.com/abstract=3575883 or http://dx.doi.org/10.2139/ssrn.3575883

Cristi A. Gleason (Contact Author)

University of Iowa - Department of Accounting ( email )

108 Pappajohn Business Building
Iowa City, IA 52242-1000
United States

Bradford F. Hepfer

Texas A&M University - Department of Accounting ( email )

430 Wehner
College Station, TX 77843-4353
United States

W. Bruce Johnson

University of Iowa - Department of Accounting ( email )

108 Pappajohn Business Building
Iowa City, IA 52242-1000
United States
319-335-1048 (Phone)
319-335-1956 (Fax)

Sam Melessa

University of Iowa - Department of Accounting ( email )

108 Pappajohn Business Building
Iowa City, IA 52242-1000
United States

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