Using latent variable structural equation modeling, we tested a theoretical model positing that grade retention has a positive effect on children's teacher-and peer-rated academic competencies and on sociometric measures of peer acceptance. We also expected that the positive effect of grade retention on peer acceptance would be mediated by children's ability to meet academic challenges in their classrooms. Participants were 350 (52.6% male) ethnically diverse and academically at-risk first graders attending 1 of 3 school districts in Texas. An individually administered test of academic achievement, teacher-report and peer-report measures of academic competence, and peer-report measures of peer acceptance were collected on children in first grade and 1 year later, at which time 63 children were repeating first grade and 287 were in second grade. The hypothesized model provided a good fit to the data. Children's academic competencies, as perceived by peers and teachers, fully mediated the effect of retention on subsequent peer acceptance.When a child does not exhibit certain minimum academic competencies, teachers and parents face a dilemma. The child can be promoted to the next grade, with the hope that the child will somehow acquire the necessary competencies. This option is known as "social promotion." An alternative is to retain the child in grade to give the child another opportunity to master academic skills for that grade. This option is known as "grade retention." Passage in 2002 of the No Child Left Behind Act, with its emphasis on mastery of minimum grade-level competencies as a condition for promotion, has renewed discussion of grade retention in the public arena. However, many researchers have examined the effects of grade retention during childhood and adolescence (Alexander, Entwisle, & Dauber, 1994 BeebeFrankenberger, Bocian, MacMillan, & Gresham, 2004;Holmes & Matthews, 1984;Jimerson, 1999Jimerson, , 2001Jimerson, Carlson, Rotert, Egeland, & Sroufe, 1997;Mantzicopoulos, 1997;Mantzicopoulos & Morrison, 1992;McCoy & Reynolds, 1999;Meidel & Reynolds, 1999;Meisels & Liaw, 1993;Rumberger, 1995;Shepard & Smith, 1990).Generally, research has suggested that grade retention has a negative effect on the developmental trajectories of children; however, there are several inconsistencies in the graderetention literature. For example, Jimerson (2001) conducted a meta-analysis of 20 studies published between 1990 and 1999 that reported the effects of grade retention on academic and socioemotional development in retained students and a comparison group of promoted students. These 20 studies yielded 175 analyses reporting academic outcomes and a mean effect size (Cohen's d, based on averaging outcomes for each study and weighing each study equally) of −.39. However, effects across studies were varied. Only nine analyses suggested that retained students performed better academically than promoted students. Conversely, 82 analyses indicated that promoted students performed better than retained students, and 8...