Are NAICS Industries More Homogeneous Than SICS Industries? by Academy of Accounting and Financial Studies Journal

Are NAICS Industries More Homogeneous Than SICS Industries?

By Academy of Accounting and Financial Studies Journal

  • Publication Date: 2009-07-01
  • Genre: Business & Personal Finance

Book Summary

INTRODUCTION Industry groupings of companies have many applications in business. It is common to compare a firm's financial performance to an industry peer group. For instance, bankers often evaluate commercial loans by comparing applicant firms' financial statements to industry measures (http://www.eciequity.com/rma_industry_comparisons.htm). Also, such benchmarking services as the Aberdeen Group (http://www.aberdeen.com/) and Enovation (http://www.enovation.com.au/) offer to evaluate how clients' performances measure up to their industry peers. Not only are companies interested in comparing themselves to similar companies, but their auditors also compare such client performance indicators as ratios to industry standards to help evaluate risk (e.g., Winograd, Gerson & Berlin, 2000). This extensive use of industry comparisons in practice is supported by research that concludes that financial statement comparisons are meaningful when made among like members of groups, such as industries (Lee, 1985). As a result, this study uses financial statement information to identify homogenous groupings of firms.

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