Industry classification, product market competition, and firm characteristics

Abstract

We examine twelve industry classifications from three classification systems: SIC (including Fama French classifications), NAICS and GICS, over the period from 1963 to 2017. The results show different classifications can generate conflicting descriptions of product market competition and firm characteristics across product market competition levels. We also demonstrate that the choice of industry classification and sample period are the causes of opposite empirical results that support the conflicting theories of Schumpeter. We find Fama French 48 and eight-digit GICS to be the only classifications that generate consistent performance of industry portfolios formed by production market level, throughout the sample period.