Environmental Engineering Reference
In-Depth Information
SIC code and 6 digit NAICS code according to
the industry in which that segment operates.
Beginning from December 15, 1977, public
firms are required to disclose the industry seg-
ment information if the segment's account is more
than 10% of their total sales, profits, or assets,
because of the Financial Accounting Standards
Board's (FASB) statement number 14. For some
companies, this may cause a problem of disclosing
segment-level information for over 10 segments
(i.e. a limitation of Compustat stated in Villalonga
(2004)). In our study, the maximum number of
segments is 6; therefore, this problem does not
affect our study. Next section explains step-by-step
how to apply Fan & Lang's method to calculate
vertical integration level of companies. We used
same the same notation with Fan & Lang (2000)
to not to confuse reader.
tells how and to what degree the
primary and
secondary
firm segments are related.
Appendix C illustrates the data and calculation
of vertical integration index for H&R Block, Inc.,
which has subsidiaries at Tax Services, Mortgage
Services, Business Services, and Investment Ser-
vices. Primary segment of this company is “Tax
Services” because it has the highest amount of
sale for H&R Block, Inc. For “Mortgage Ser-
vices” segment
• NAICS code is 522292, which is shown as
522A00 in 2002 I-O table
• Sale of H&R Block, Inc. in this industry is
1,150 M$
• Total sale of “Mortgage Services” industry
is 206,138 M$
• The output of “Tax Services” industry re-
quired to produce the output of “Mortgage
Services” industry,
a
ij
is 208 M$
• The output of industry “Mortgage
Services” required to produce the output
of “Tax Services” industry,
a
ji
is 279.9 M$
•
v
ij
, v
ji
, and their averages
V
ij
are 0.001,
0.003, and 0.00189 respectively
Measuring Step-by-Step Vertical
Integration with Fan & Lang Method
The benchmark input-output tables
4
report the dol-
lar value of industry
i
's output used to produce the
output of industry
j
and this is denoted by Fan and
Lang as
a
ij
. We divide
a
ij
to the industry
j
's total
output to get
v
ij
, interpreted as “the dollar value of
industry
i
i's output required to produce 1 dollar's
worth of industry
j
's output”. In an opposite man-
ner, we find the values of
a
ji
and
v
ji
. Moreover, we
find the
V
ij
(relatedness coefficient) which is the
average of
v
ij
and
v
ji
and represents “the proxy for
the opportunity for vertical integration between
industries
i
and
j”
(Fan & Lang, 2000, p. 633).
The vertical integration level is defined as;
•
Finally, 0.0019 is the vertical integration
level
V
which is obtained by the multipli-
cation of
V
ij
value of secondary industry
with its corresponding sale weight,
w
j
RESULTS
We have used Wilcoxon Rank Sum Test (a.k.a
Mann-Whitney U test) for comparing sustainable
companies and their competitors that are not listed
as sustainable companies. The residual analysis
does not confirm the normality assumption;
therefore, we preferred to use this nonparametric
test. Nonparametric statistics are preferred when
analysis does not depend on any population fitting
to distribution methods. In our analysis, vertical
integration level is considered as the dependent,
response or outcome variable, and the “strategy”
is the independent or factor variable.
=
∑
(
V
w
j
)
ij
j
where
w
j
is the ratio of
j
th secondary segment sales
to the total sales of all secondary segments (sales
weight of
secondary
industries). This formulation
