When your errors are your only hope: Testing “Hidden Hypotheses” in mediation studies in strategic management

Abstract

Mediation models involve two regression equations, one each for the dependent and mediating variables, Y and M. Tests of theoretical hypotheses in strategic management focus on “betas,” that is, the estimated regression coefficients in the Y and M equations. A neglected point is that strategic management theory sometimes suggests a “hidden hypothesis” concerning the sign of the error correlation between the Y and M regressions. Systems-based estimation methods can be used to test “hidden hypotheses.” We show that sometimes “hidden hypotheses” offer the only hope of empirically distinguishing between competing theories.

Keywords

mediating effects mediation systems-based estimation methods three-stage least squares (3SLS)

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