Show Summary Details

Page of

Printed from Oxford Research Encyclopedias, Economics and Finance. Under the terms of the licence agreement, an individual user may print out a single article for personal use (for details see Privacy Policy and Legal Notice).

date: 23 April 2024

Simple and Intuitive Business Practices in Financial Economicslocked

Simple and Intuitive Business Practices in Financial Economicslocked

  • Itzhak Ben-DavidItzhak Ben-DavidFisher College of Business, the Ohio State University

Summary

In stark contrast to the sophisticated methods advocated by academics in business schools, actual business practices are typically simple and intuitive (e.g., valuation, debt management, compensation). Methods that have these characteristics are more likely to become widely used business practices for two reasons. First, they are less prone to overfitting to a particular setting and therefore are robust across economic environments and applicable in new settings. Second, they are easy to communicate and are verifiable. Therefore, they can spread easily across organizations and are hard to replace with new and improved methods. This explanation of business practices can help resolve puzzles in corporate finance, such as the variation in debt leverage across industries.

Subjects

  • Financial Economics

You do not currently have access to this article

Login

Please login to access the full content.

Subscribe

Access to the full content requires a subscription