Firm Complexity

45 Pages Posted: 4 Oct 2017 Last revised: 28 Dec 2019

See all articles by Anzhela Knyazeva

Anzhela Knyazeva

Independent; New York University (NYU) - Leonard N. Stern School of Business

Diana Knyazeva

Independent; Securities and Exchange Commission

Date Written: December 23, 2019


In this paper we present new evidence on the relation between geographic diversification and firm risk using granular data on corporate locations. After accounting for determinants of geographic diversification, we find that geographically complex firms exhibit significantly higher risk than their focused peers. The findings are consistent with the hypothesis that geographically complex firms involve higher information and monitoring costs. The results are not consistent with the hedging hypothesis, which predicts a reduction in risk as a result of geographic diversification of cash flows and business risk. The effects have a significant economic magnitude and are stronger in the presence of business diversification, which also increases a firm’s complexity. The results continue to hold for firms of varying size and cannot be explained by other firm, industry, and local factors.

Keywords: firm complexity, geographic diversification, information frictions, location, credit quality

JEL Classification: G30, G32, G34

Suggested Citation

Knyazeva, Anzhela and Knyazeva, Diana, Firm Complexity (December 23, 2019). Available at SSRN: or

Anzhela Knyazeva (Contact Author)

Independent ( email )

No Address Available

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

Diana Knyazeva

Independent ( email )

No Address Available

Securities and Exchange Commission

100 F Street, NE
Washington, DC 20549
United States

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