Firms that read more perform better

(Press-News.org) [Vienna, November 6, 2024] — “Tell me how you read and I’ll tell you who you are.” By analyzing online reading behavior across millions of firms worldwide, a new study out of the Complexity Science Hub (CSH) connects how much information companies consume and how the consumption relates to their size.

"The way companies consume information is reminiscent of biological organisms. They take in, transmit, and transform information to make decisions. As with organisms, there are important size differences. Larger firms tend to consume information more efficiently but face significant challenges in coordination," says co-author Eddie Lee, from CSH.

The team analyzed a comprehensive dataset of online reading habits from employees across millions of firms worldwide. This dataset, spanning a two-week period, includes major publishers like The Wall Street Journal, Bloomberg, and Forbes, along with specialized sites such as ITCentral Station and Questex. 

“It is the first time that this dataset has been quantitatively analyzed in depth. By getting a closer look on how firms consume information, we discovered new and previously unseen patterns of the knowledge economy,” adds Lee. 

Economy of scale

The paper, recently published in Royal Society Open Science, reveals that the volume of information firms consume increases more than proportionally with their size. This suggests an “economy of scale” in news consumption, where larger firms have relatively less capital, sales, and fewer employees for the same amount of reading compared to smaller firms. This presents a fascinating and yet unknown aspect of firms.

Large companies often face coordination challenges, perhaps resulting in repetitive and redundant reading. “Beyond a certain threshold, large companies read a greater number of unique pieces of news, which leads to a greater amount of redundancy,” explains Lee.

In addition, big companies tend to accumulate a broader range of reading interests rather than specializing, according to the study. This finding adds a subtlety to the classical idea of labor specialization because increased specialization does not seem to reduce information demand.

FInancial performance

“We also show that deviations from the typical trends, particularly in terms of excess reading, are strongly correlated with higher future returns and valuations. This indicates that firms that consume more information than typical for their size tend to perform better financially,” adds Lee.

“There is also evidence that such reading patterns are strongly linked to how innovative firms are as well as the diversity of economic activities they engage in,” adds co-author Alan Kwan, from the University of Hong Kong.

“Showing that firm performance is linked to information consumption is very exciting,” evaluates Lee. “The findings suggest that understanding how companies manage information can offer valuable insights into their operation dynamics and financial health.” 

About the study

The study "Information consumption and firm size," by Edward D. Lee, Alan P. Kwan, Rudolf Hanel, Anjali Bhatt, and Frank Neffke has been published in Royal Society Open Science.

About CSH

The Complexity Science Hub (CSH) is Europe’s research center for the study of complex systems. We derive meaning from data from a range of disciplines – economics, medicine, ecology, and the social sciences – as a basis for actionable solutions for a better world. Established in 2015, we have grown to over 70 researchers, driven by the increasing demand to gain a genuine understanding of the networks that underlie society, from healthcare to supply chains. Through our complexity science approaches linking physics, mathematics, and computational modeling with data and network science, we develop the capacity to address today’s and tomorrow’s challenges.

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