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JOURNAL OF APPLIED BUSINESS AND ECONOMICS
The Information Costs of Organization: NLP Measures of Decision Making Capacity
Author(s): M.J. Histen
Citation: M.J. Histen, (2021) "The Information Costs of Organization: NLP Measures of Decision Making Capacity," Journal of Applied Business and Economics, Vol. 23, Iss.2, pp. 254-273
Article Type: Research paper
Publisher: North American Business Press
Abstract:
Coase’s puzzle of economic organization asks why can’t a larger firm do everything a smaller firm can do and more. Most studies underrepresent problems in decision making capacities which have been difficult to quantify. This study corroborates a more complete theory of firm using applications from natural language processing and information theory. Probit models regress an explanatory variable from textual analysis over annual reports against a discrete measure of organizational boundaries from financial disclosures. These estimates provide a cost calculus for organizing a marginal transaction internally or through markets, offering further implications for policy and managerial practice.
