For example, if four years of data for the market value of equity are available, but five years of data for total assets are available, the company will be excluded from our analysis. This exclusion is not done for theoretical reasons, but because these companies provide significant challenges to our model in calculating averages over the three to five year time period. The Compustat database allows companies to present business segment sales for up to ten different SIC codes. Our analysis focuses on this data to determine which SIC an individual company should be classified in. Including a conglomerate in an industry analysis could have a distorting effect on an industry's financial performance.
Industries differ by capitalization requirements, profitability, and asset utilization.
A conglomerate that participates in two or more diverse industries could have completely different financial statements in relation to the other companies in the industries with which it competes. For this reason, conglomerates are excluded from the analysis. Therefore, in our analysis, Company A would appear in industries 35 and 3. For Company B, the picture is not as clear. Gaps in monthly stock price data over the preceding 120 months.