Abstract
We examine how ratios in which the denominator can become negative suffer from at least two construct validity issues. First, negative denominators can cause the variable to not display the properties of a coherent continuous variable. Second, the ratio, as an intended measure of a construct, may no longer reflect the theoretical construct of interest. We examine the case of equity ratios to illustrate these two issues and show how these issues influence statistical analyses which can interfere with the interpretation of statistical results. Finally, we propose potential solutions to the issues discussed.
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