Jit Adoption: The Effects of Inventory Valuation Method, Lifo Reserves, and Financial Reporting and Tax Incentives
Posted: 26 Feb 2002
Date Written: December 2001
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: Suggested Citation