Journal of Financial and Quantitative Analysis Vol. 59 No. 6 2024
Measuring Firm Complexity
Abstract
In business research, firm size is both ubiquitous and readily measured. Complexity, another firm-related construct, is also relevant, but difficult to measure and not well-defined. As a result, complexity is less frequently incorporated in empirical designs. We argue that most extant measures of complexity are one-dimensional, have limited availability, and/or are frequently misspecified. Using both machine learning and an application-specific lexicon, we develop a text solution that uses widely available data and provides an omnibus measure of complexity. Our proposed measure, used in tandem with 10-K file size, provides a useful proxy that dominates traditional measures.
- DOI
- 10.1017/s0022109023000716
- Volume
- 59
- Issue
- 6
- Pages
- 2487-2514
- Language
- en
- Sources
- bibtex:phds-export.bib crossref openalex