Statistical versus Economic Significance in Accounting: A Reality Check

Bertomeu Jeremy ()
Additional contact information
Bertomeu Jeremy: Olin Business School, Washington University in St Louis, St. Louis, MO 63130-4899, USA

Accounting, Economics, and Law: A Convivium, 2025, vol. 15, issue 1, 105-121

Abstract: Empirical research is ripe for a reality check, as elegantly put by the “elephants in the room” (Ohlson, 2025. Empirical accounting seminars: Elephants in the room. Accounting, Economics, and Law: Convivium 15, 1–8) referring to practices to disguise false positives with the aid of statistical engineering. However, the diagnosis points to a deeper problem. The dominant empirical paradigm combines extraordinarily vague hypotheses with ridiculously high desired levels of statistical confidence beatable solely with econometric hacks. Instead, I argue that economic magnitudes measure meaningful theoretical constructs and require far less than conventional significance levels for measurements of sufficient importance. Precisely estimating that an effect is close to zero can be more meaningful than a noisy but significant coefficient. I make several actionable proposals: (1) report standard errors rather than conventional statistical significance (stars) or t-stats, (2) discuss target significance levels likely to change priors and could much higher than weak significance for unsettled questions, (3) report precisely estimated zeros and power analyses, and (4) anchor empirical design on formal theory justified with precise references or structural models.

Keywords: econometrics; methods; philosophy of science; scientific process; theory (search for similar items in EconPapers)
JEL-codes: A1 A2 C01 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1515/ael-2023-0002 (text/html)
For access to full text, subscription to the journal or payment for the individual article is required.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bpj:aelcon:v:15:y:2025:i:1:p:105-121:n:1009

Ordering information: This journal article can be ordered from
https://www.degruyter.com/journal/key/ael/html

DOI: 10.1515/ael-2023-0002

Access Statistics for this article

Accounting, Economics, and Law: A Convivium is currently edited by Reuven S. Avi-Yonah, Yuri Biondi and Shyam Sunder

More articles in Accounting, Economics, and Law: A Convivium from De Gruyter
Bibliographic data for series maintained by Peter Golla ().