To Omit or to Include? Integrating the Frugal and Prolific Perspectives on Control Variable Use

Abstract

Over the recent years, two perspectives on control variable use have emerged in management research: the first originates largely from within the management discipline and argues to remain frugal, to use control variables as sparsely as possible. The second is rooted in econometrics textbooks and argues to be prolific, to be generous in control variable inclusion to not risk omitted variable bias, and because including irrelevant exogenous variables has little consequences for regression results. We present two reviews showing that the frugal perspective is becoming increasingly popular in research practice, while the prolific perspective has received little explicit attention. We summarize both perspectives’ key arguments and test their specific recommendations in three Monte Carlo simulations. Our results challenge the two recommendations of the frugal perspective of “omitting impotent controls” and “avoiding proxies” but show the detrimental effects of including endogenous controls (bad controls). We recommend considering the control variable selection problem from the perspective of endogeneity and selecting controls based on theory using causal graphs instead of focusing on the many or few questions.