A Textual Measure of Porter’s Generic Strategies

Abstract

To gain and sustain competitive advantage, a firm may orient its strategy to differentiating its products and services or reducing its costs. Most prior studies measure strategy using data from executive surveys, proprietary databases, or panelist evaluation. These research methods are costly to implement and, consequently, restrict the scope of research. We develop a textual measure of strategy using the annual 10-K filings of U.S. public firms. We validate our measure by showing that its properties and its associations with operating activities are consistent with those suggested in the prior literature. We document that our measure of strategy is associated with firm performance as expected. Overall, our approach can be useful for many potential studies in management and other business disciplines.

Keywords: strategic orientation, competitive advantage, text analysis, operating activities, firm performance

JEL Classification: L1, M41