Question 3 b) on page 363 of the CFA texts (Vol 1). I understand the answer (on pg. 384) but then it goes on to say “clearly, in this regression the D/E ratio is a highly significant variable.” How do they come to that conclusion if the coefficient for the D/E is -0.1895? I know coefficients are high school type math stuff, but I thought if anything the coefficient is saying it has little if any relation to effecting the dependent variable. Any help would be appreciated, thanks.
that is based on the fact that the p-value is so small. which means that probability needs to be lower than 0.236% - which is extremely small - for the D/E coefficient to be not significant. (smallest level of significance at which the variable is significant = p-value). another way to look at it -> 3.0565 was the absolute value of the t-statistic --> at 5% level of significance (two sided) - your comparison value would be a t-stat of around 2.00 or there abouts (remember 1.96 for z and t is bigger than z). so your t-statistic is significant as well.
Thanks a lot CP, that was really helpful