A Language-Based Approach to Measuring Creative Exploration

55 Pages Posted: 18 Nov 2021

See all articles by Vladimir A. Gatchev

Vladimir A. Gatchev

University of Central Florida - Department of Finance

Christo A. Pirinsky

University of Central Florida

Buvaneshwaran Venugopal

University of Central Florida - College of Business Administration

Date Written: October 29, 2021

Abstract

We propose a new measure of the exploratory activities of companies based on the idea that experimentation with new courses of action and the need to describe them entails the adoption of new words in firm regulatory disclosures. Unlike traditional indicators, such as R&D spending, the proposed exploration indicator is available for all publicly traded firms across all industries. The exploration indicator predicts firm knowledge accumulation, as measured by future patenting and trademarking activities. It further shows that firm exploration declines after periods of high R&D spending and over time. The exploration indicator correlates positively with firm risk and exhibits a distinct positive impact on firm value unexplained by traditional innovation indicators. Our language-based approach can be applied to measure creative contributions in other domains, such as government grant applications and academic publications.

Keywords: Exploration, learning by doing, innovation, textual analysis, firm risk, firm value

JEL Classification: D83, G12, G32, O30

Suggested Citation

Gatchev, Vladimir A. and Pirinsky, Christo Angelov and Venugopal, Buvaneshwaran, A Language-Based Approach to Measuring Creative Exploration (October 29, 2021). Available at SSRN: https://ssrn.com/abstract=3952772 or http://dx.doi.org/10.2139/ssrn.3952772

Vladimir A. Gatchev (Contact Author)

University of Central Florida - Department of Finance ( email )

Orlando, FL 32816-1400
United States
(407) 823-3694 (Phone)
(407) 823-6676 (Fax)

HOME PAGE: http://www.bus.ucf.edu/vgatchev/

Christo Angelov Pirinsky

University of Central Florida ( email )

College of Business Administration/Finance
PO Box 161400
Orlando, FL FL 32816
United States
407-823-5962 (Phone)

Buvaneshwaran Venugopal

University of Central Florida - College of Business Administration ( email )

PO Box 161400
Orlando, FL 32816
United States

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