The Impact of Industry Classification Schemes on Financial Research
This paper investigates industry classification systems. During the last 50 years there has been a considerable discussion of problems regarding the classification of economic data by industries. From my perspective, the central point of each classification is to determine a balance between aggregation of similar firms and differentiation between industries. This paper examines the structure and content of industrial classification schemes and how they affect financial research. I use classification systems provided by the Worldscope and the Compustat database. First, this study gives a detailed description of the structure and methodology of industrial classification systems and the relevance in leading finance and accounting journals. Second, I construct a benchmark classification system to measure the performance of different systems and provide evidence that some systems a more homogeneous in terms of value drivers than others. Third, I examine how multiple valuation is influenced by industry classification and show that the results vary significantly for different systems.
|Date of creation:||Dec 2005|
|Contact details of provider:|| Postal: Spandauer Str. 1,10178 Berlin|
Web page: http://sfb649.wiwi.hu-berlin.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- Kathleen M. Kahle & Ralph A. Walkling, "undated". "The Impact of Industry Classifications on Financial Research," Research in Financial Economics 9607, Ohio State University.
- Volker Herrmann & Frank Richter, 2003. "Pricing With Performance-Controlled Multiples," Schmalenbach Business Review (sbr), LMU Munich School of Management, vol. 55(3), pages 194-219, July.
- repec:bla:joares:v:30:y:1992:i:1:p:94-108 is not listed on IDEAS
- repec:bla:joares:v:10:y:1972:i:1:p:77-95 is not listed on IDEAS
- Cheng, C S Agnes & McNamara, Ray, 2000. "The Valuation Accuracy of the Price-Earnings and Price-Book Benchmark Valuation Methods," Review of Quantitative Finance and Accounting, Springer, vol. 15(4), pages 349-370, December.
- 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.
- Fama, Eugene F. & French, Kenneth R., 1997. "Industry costs of equity," Journal of Financial Economics, Elsevier, vol. 43(2), pages 153-193, February.
- Clarke, Richard N, 1989. "SICs as Delineators of Economic Markets," The Journal of Business, University of Chicago Press, vol. 62(1), pages 17-31, January.
- Charles M. C. Lee & James Myers & Bhaskaran Swaminathan, 1999. "What is the Intrinsic Value of the Dow?," Journal of Finance, American Finance Association, vol. 54(5), pages 1693-1741, October.
- Belén Villalonga, 2004. "Does Diversification Cause the "Diversification Discount"?," Financial Management, Financial Management Association, vol. 33(2), Summer.
- Sanjeev Bhojraj, 2002. "Who Is My Peer? A Valuation-Based Approach to the Selection of Comparable Firms," Journal of Accounting Research, Wiley Blackwell, vol. 40(2), pages 407-439, 05.
- Jing Liu, 2002. "Equity Valuation Using Multiples," Journal of Accounting Research, Wiley Blackwell, vol. 40(1), pages 135-172, 03.
- Fan, Joseph P H & Lang, Larry H P, 2000. "The Measurement of Relatedness: An Application to Corporate Diversification," The Journal of Business, University of Chicago Press, vol. 73(4), pages 629-660, October.
- Kim, Moonchul & Ritter, Jay R., 1999. "Valuing IPOs," Journal of Financial Economics, Elsevier, vol. 53(3), pages 409-437, September.
- Fertuck, Leonard, 1975. "A Test of Industry Indices Based on SIC Codes," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 10(05), pages 837-848, December.
- Karl Lins & Henri Servaes, 1999. "International Evidence on the Value of Corporate Diversification," Journal of Finance, American Finance Association, vol. 54(6), pages 2215-2239, December.
- Berger, Philip G. & Ofek, Eli, 1995. "Diversification's effect on firm value," Journal of Financial Economics, Elsevier, vol. 37(1), pages 39-65, January.
- Tim Loughran & Jennifer Marietta-Westberg, 2005. "Divergence of Opinion Surrounding Extreme Events," European Financial Management, European Financial Management Association, vol. 11(5), pages 579-601.
When requesting a correction, please mention this item's handle: RePEc:hum:wpaper:sfb649dp2005-062. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (RDC-Team)
If references are entirely missing, you can add them using this form.