SICs as Delineators of Economic Markets

The Standard Industrial Classification (SIC) is often used to divide firms into homogeneous markets. Firms classified into the same (n + 1)-digit SIC are thought to be more homogeneous than firms sharing only the same n-digit SIC. This study measures how well the SIC succeeds at combining firms into homogeneous economic markets. Assuming that firms in more similar economic markets should display more similar sales changes, profit rates, or stock price changes than firms in less similar economic markets, the author finds that the SIC is not successful at identifying firms with such similar characteristic variables. Copyright 1989 by the University of Chicago.