SIC GICS NAICS Industry Alphabet Soup: Decoding the Identifiers Jay Reingold Vice President, Library Services May 2, 2003 Agenda Industry Classification - An approach to the problem. How can we classify industries? Who needs to classify industries? SIC and NAICS codes:
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A. A group of firms that share some type of economic relatedness. (JR)
Question 1A: So what does that mean?
“Economic Relatedness” could mean:
Challenge is identifying the right system for the right purpose or mode of inquiry.
Government: How is the economy structured? What industries are growing / declining? Where are jobs being created?
Businesses: Who are my competitors? Who are my potential customers? How big is my market? How do I evaluate credit risk?
Investors: What is the sensitivity of my portfolio or an investment to industry factors? How do I hedge industry risk? How do I overweight or underweight a particular industry in my portfolio?
Can a single classification system help us answer all of these questions?
Economists: NAICS facilitates more precise and descriptive calculation of the components of GDP.
Marketers: Better able to target emerging industries and service companies.
Businesses: Production-based system enables companies to measure creditworthiness of businesses more accurately (Firms within NAIC industries more likely to carry a similar amount of debt).
A recent Cornell study has demonstrated that GICS based industry means explain a greater proportion of variation in . . .
Source: Bhojraj, S., Lee, C. M. C.; Oler, D. “What’s My Line? A Comparison of Industry Classification Schemes for Capital Market Research.” Working Paper. Cornell University. November, 2002
To conclude . . .