Restricted Variance Interactions in Entrepreneurship Research: A Unique Basis for Context-as-Moderator Hypotheses

In this methodological brief, we demonstrate the usefulness of the restricted variance (RV) interaction to entrepreneurship research. RV reasoning can help scholars to specify precise roles for contextual moderators. This specificity allows for strengthening of arguments and for testing of one of the reasons for an interaction. In some cases, it points to otherwise unexpected interaction patterns. We illustrate the power of RV reasoning with a data set of 503 biotech firms to show how RV explains geographic differences in the relationship between number of alliances and initial public offering value. Finally, we show how these interactions can be tested given typical distributions.