Jit Adoption: The Effects of Inventory Valuation Method, Lifo Reserves, and Financial Reporting and Tax Incentives

Posted: 26 Feb 2002

See all articles by Michael Kinney

Michael Kinney

Texas A&M University - Department of Accounting

William F. Wempe

Texas Christian University - M.J. Neeley School of Business

Date Written: December 2001

Abstract

We examine whether adoption of a fundamental business technology, JIT, is influenced by financial reporting and tax incentives. We find that adoption decisions are influenced by the interaction of firms' LIFO reserve levels with their income smoothing, debt covenant, and tax incentives. We also find that firms with earnings-based bonus plans are more likely to adopt JIT, and that adoption is less prevalent among firms historically engaging in high degrees of earnings management. Our study extends earlier research documenting a relation between inventory valuation method and year-end inventory transactions, and suggests a pervasiveness of earnings management beyond that documented in prior literature.

Keywords: Earnings management; Just-in-time; LIFO reserve; LIFO liquidations

JEL Classification: M11, M40, M41, M46, H25

Suggested Citation

Kinney, Michael R. and Wempe, William F., Jit Adoption: The Effects of Inventory Valuation Method, Lifo Reserves, and Financial Reporting and Tax Incentives (December 2001). Available at SSRN: https://ssrn.com/abstract=301282

Michael R. Kinney

Texas A&M University - Department of Accounting ( email )

430 Wehner
College Station, TX 77843-4353
United States
979-862-2078 (Phone)
979-845-0028 (Fax)

William F. Wempe (Contact Author)

Texas Christian University - M.J. Neeley School of Business ( email )

Fort Worth, TX 76129
United States
817-257-7614 (Phone)
817-257-7227 (Fax)

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