On the Stock Return Method to Determining Industry Substructure -The Case of Airline, Banking, and Oil Industries-

Partly because firm structures vary within an industry and partly because the industry, strategic group, and firm levels are significantly associated with firm performance, it is important to subcategorize the firms in an industry in an objective way. As an effective method in classifying industry substructure, the stock return method has been proposed in the field using the spot movements of stock returns upon inside and outside perturbations. In the paper, we apply the method to a sample in the airline, banking and oil industries over the period from 1988 to 1992 in order to examine whether the groups found are reasonable from a common sense point of view and whether their structures are robust across different sample windows. We find that the groups identified show a clear face validity and that the group structures are consistently maintained across 1‐, 2‐, 3‐, and 5‐year windows. The results may imply that the method could detect both industry and strategic group effects at the same time. Given that objectivity and replicability are crucial in empirical studies, the stock return method is likely to introduce a way to enhance the level of empirical work in the strategic group research.