The Impact of Industry Classification Schemes on Financial Research

48 Pages Posted: 20 Dec 2005

See all articles by Christian Weiner

Christian Weiner

Humboldt University of Berlin - School of Business and Economics

Date Written: December 20, 2005

Abstract

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.

Keywords: industry classification

JEL Classification: G12, G14, M40

Suggested Citation

Weiner, Christian, The Impact of Industry Classification Schemes on Financial Research (December 20, 2005). Available at SSRN: https://ssrn.com/abstract=871173 or http://dx.doi.org/10.2139/ssrn.871173

Christian Weiner (Contact Author)

Humboldt University of Berlin - School of Business and Economics ( email )

Spandauer Str. 1
Berlin, D-10099
Germany

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