Do Lifo Manage Inventories and Accruals to Meet Tax and Financial Reporting Objectives?

Posted: 1 Jun 1998

See all articles by Alister Hunt

Alister Hunt

University of Auckland Business School

Susan Moyer

University of Washington at Seattle

Terry J. Shevlin

University of California-Irvine; University of California-Irvine

Abstract

We examine whether managers adjust LIFO inventories other current accruals and depreciation consistent with the objective of minimizing taxes debt-related costs costs of foregoing smoothed earnings and adjustment costs. Our findings indicate long-time LIFO users on average manage inventories to smooth earnings and reduce debt costs and manage current accruals to smooth earnings and lower taxes. Unlike earlier studies we do not find strong evidence of year-end inventory management to increase LIFO tax savings. Our findings also indicate previous period accruals contemporaneous operating cash flows and operating cycle length influence current period accruals' predetermined levels and adjustment costs.

JEL Classification: M41, H25

Suggested Citation

Hunt, Alister and Moyer, Susan and Shevlin, Terry J. and Shevlin, Terry J., Do Lifo Manage Inventories and Accruals to Meet Tax and Financial Reporting Objectives?. Available at SSRN: https://ssrn.com/abstract=55506

Alister Hunt (Contact Author)

University of Auckland Business School ( email )

Private Bag 92019
Room: C317
Auckland
New Zealand
+64 9 3737599 Ext. 4878 (Phone)

Susan Moyer

University of Washington at Seattle

Seattle, WA 98195
United States

Terry J. Shevlin

University of California-Irvine ( email )

Paul Merage School of Business
Irvine, CA 92697-3125
United States
949-824-6149 (Phone)

University of California-Irvine ( email )

Paul Merage School of Business
Irvine, CA California 92697-3125
United States
2065509891 (Phone)

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