Economic Significance in Corporate Finance

Abstract

Reporting the economic significance of findings in corporate finance has become increasingly common, but a review of the literature reveals shortcomings in typical reporting practices. Researchers can more effectively communicate the practical importance of findings by using standard measures of economic significance that are scaled by the standard deviation of the dependent variable, by providing all statistics necessary to calculate economic significance, and by providing benchmarks by which to evaluate the magnitude of economic significance. To support these objectives, I show why measures scaled by the standard deviation are preferable, and I provide benchmarks based on hundreds of established findings from the literature.

Keywords: economic significance, corporate finance, empirical methodology

JEL Classification: C18, C52, G30