Hi All,

I am trying to calculate entropy measure using Palepu, Krishna (1985), “Diversification Strategy , Profit Performance and the Entropy Measure,” 6 (3), 239–55.

What’s confusing me is that how do I treat two segments with the same 4 digit codes. For example, my sample has a company with a segment named “Health Management” and another named “Professional Diagnostics”, with both having SIC code as 2835. In my calculations, do I treat the segments separately (i.e. to take pi*ln(1/pi) for both the segments) or do I add the segment sales together and treat sum of both as one segment i.e. 2835. From Palepu, what I understood is that Group is on 2 digit level while segment is on 4 digit level.

I hope the question makes sense. Looking forward to hearing from you guys!

Best,

Mo