A Refinement of the Entropy Measure of Firm Diversification: Toward Definitional and Computational Accuracy

Abstract

The entropy measure of firm diversification is refined to improve its precision. The concept of diversification is defined and the measure is modified to reflect its dimensions—the extent of diversification across segments (distribution) and the number of segments in which a firm operates. The refined measure makes it possible to better understand equivalences among firms with different diversification profiles.