Industry (Re)Classifications and Corporate Governance
Working Paper Author/Authors
Key Finding
Firms are significantly more likely to include peers whose GICS codes converge with their own and to drop peers whose codes diverge
Abstract
This study examines whether industry classifications affect how firms select peers for executive compensation benchmarking. For identification, we exploit the setting of Global Industry Classification Standard (GICS) reclassifications. We find that firms are significantly more likely to include peers whose GICS codes converge with their own and to drop peers whose codes diverge, with stronger effects when proxy advisors and passive investors provide greater oversight. We find no evidence of strategic selection, which suggests that these patterns reflect an update of the underlying benchmark. However, because reclassifications occur with a lag, compensation contracts may remain temporarily misaligned with evolving economic conditions. Overall, the results point to the influence of third-party classification providers in shaping corporate governance.
© Gaizka Ormazabal, Xucheng Shi, 2026
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