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The importance of industry classification in estimating concentration ratios

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  • Hrazdil, Karel
  • Zhang, Ray

Abstract

We compare different industry concentration ratios based on the Standard Industry Classification (SIC) system to ratios based on the Global Industry Classification Standard (GICS) system and demonstrate through the analysis of industry markups that GICS-based measures are better proxies for the actual industry concentration than SIC-based measures.

Suggested Citation

  • Hrazdil, Karel & Zhang, Ray, 2012. "The importance of industry classification in estimating concentration ratios," Economics Letters, Elsevier, vol. 114(2), pages 224-227.
  • Handle: RePEc:eee:ecolet:v:114:y:2012:i:2:p:224-227
    DOI: 10.1016/j.econlet.2011.10.001
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    References listed on IDEAS

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    1. Heather E. Tookes, 2008. "Information, Trading, and Product Market Interactions: Cross-sectional Implications of Informed Trading," Journal of Finance, American Finance Association, vol. 63(1), pages 379-413, February.
    2. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, January.
    3. Philippe Aghion & Nick Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2005. "Competition and Innovation: an Inverted-U Relationship," The Quarterly Journal of Economics, Oxford University Press, vol. 120(2), pages 701-728.
    4. Kahle, Kathleen M. & Walkling, Ralph A., 1996. "The Impact of Industry Classifications on Financial Research," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 31(03), pages 309-335, September.
    5. Kathleen M. Kahle & Ralph A. Walkling, "undated". "The Impact of Industry Classifications on Financial Research," Research in Financial Economics 9607, Ohio State University.
    6. Sanjeev Bhojraj & Charles M. C. Lee & Derek K. Oler, 2003. "What's My Line? A Comparison of Industry Classification Schemes for Capital Market Research," Journal of Accounting Research, Wiley Blackwell, vol. 41(5), pages 745-774, December.
    7. DeFond, Mark L. & Park, Chul W., 1999. "The effect of competition on CEO turnover1," Journal of Accounting and Economics, Elsevier, vol. 27(1), pages 35-56, February.
    8. Ashiq Ali & Sandy Klasa & Eric Yeung, 2009. "The Limitations of Industry Concentration Measures Constructed with Compustat Data: Implications for Finance Research," Review of Financial Studies, Society for Financial Studies, vol. 22(10), pages 3839-3871, October.
    9. Kewei Hou & David T. Robinson, 2006. "Industry Concentration and Average Stock Returns," Journal of Finance, American Finance Association, vol. 61(4), pages 1927-1956, August.
    10. Hennessy, David A. & Lapan, Harvey, 2007. "When different market concentration indices agree," Economics Letters, Elsevier, vol. 95(2), pages 234-240, May.
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    Citations

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    Cited by:

    1. repec:spr:jqecon:v:15:y:2017:i:2:d:10.1007_s40953-016-0055-2 is not listed on IDEAS
    2. Lis-Gutiérrez, Jenny-Paola, 2013. "Medidas de concentración y estabilidad de mercado. Una aplicación para Excel
      [Market concentration and market stability measures. An application for Excel]
      ," MPRA Paper 47615, University Library of Munich, Germany.
    3. Zura Kakushadze & Willie Yu, 2017. "Open Source Fundamental Industry Classification," Papers 1706.04210, arXiv.org, revised Dec 2017.
    4. Andrews, Matt & Harrington, Peter, 2016. "Off Pitch: Football's Financial Integrity Weaknesses, and How to Strengthen Them," Working Paper Series 16-009, Harvard University, John F. Kennedy School of Government.
    5. Hrazdil, Karel & Trottier, Kim & Zhang, Ray, 2013. "A comparison of industry classification schemes: A large sample study," Economics Letters, Elsevier, vol. 118(1), pages 77-80.
    6. Karel Hrazdil & Thomas Scott, 2013. "The role of industry classification in estimating discretionary accruals," Review of Quantitative Finance and Accounting, Springer, vol. 40(1), pages 15-39, January.

    More about this item

    Keywords

    Industry; Concentration; Markup; SIC; GICS;

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • C80 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - General

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