The Trouble with Approximating Industry Concentration from Compustat

33 Pages Posted: 4 Dec 2016 Last revised: 14 Nov 2017

See all articles by Jan Keil

Jan Keil

Humboldt Universität zu Berlin

Date Written: May 19, 2017

Abstract

Using Compustat to measure industry concentration in the U.S. is problematic. Popular approximations of the Herfindahl Index based on this data set have a vanishingly low correlation with the more comprehensive Census measure. As a result, major variables of interest in corporate finance show markedly different correlations with these indicators, which can lead to a breakdown of regression results. This confirms findings of an earlier article that has been ignored by recent empirical studies. I show that Census concentration ratios are excellent measures and provide a newly compiled data set based on all concentration data ever produced by the Department of Commerce – eliminating the need to use the convenient but flawed Compustat files.

Keywords: Industry concentration, Herfindahl-Hirschman Index, concentration ratios, Compustat, Economic Census

JEL Classification: C81, G00, L11

Suggested Citation

Keil, Jan, The Trouble with Approximating Industry Concentration from Compustat (May 19, 2017). Journal of Corporate Finance, Vol. 45, No. August, 2017. Available at SSRN: https://ssrn.com/abstract=2879035 or http://dx.doi.org/10.2139/ssrn.2879035

Jan Keil (Contact Author)

Humboldt Universität zu Berlin ( email )

Berlin
Germany

HOME PAGE: http://www.jankeil.com

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