Abstract The academic performance of over 38,000 Texas students who failed the state’s 1994 reading test was examined through their sophomore year in high school. Propensity score matching resulted in strata with retained and promoted students of comparable observed characteristics. Reading scores were analyzed using a two-level hierarchical linear model. Same grade comparisons show that third graders failing the state-mandated reading test who repeated the grade consistently outperformed in later grades the socially promoted children who also failed the third grade test. Additional analyses indicate that alternative explanations for the findings such as omitted variables, regression to the mean, differential panel attrition and cohort effects are not supported. The results are consistent with findings from other recent studies which suggest that grade retention in third grade may help increase student achievement.