The Stock Market Reaction to the Allowance of Lifo for Tax Purposes

40 Pages Posted: 31 Jul 1995

See all articles by Morton Pincus

Morton Pincus

University of California, Irvine


I investigate the stock market response to the allowance of LIFO for tax purposes. I structure the analysis as an event study of the Revenue Acts of 1938 and 1939. Accordingly I can examine market behavior in a way that is less subject to the potential confounding of self-selection which characterizes most LIFO adoption studies. I observe a reliably positive market reaction to the incorporation of LIFO into the tax code and the most significant effects are for firms having the largest estimated LIFO tax benefits. I conclude the market revised its probabilities that at least some firms would avail themselves of the opportunity to use LIFO and defer taxes on inventory profits.

JEL Classification: G14, H25, M41, N22

Suggested Citation

Pincus, Morton P.K., The Stock Market Reaction to the Allowance of Lifo for Tax Purposes. Available at SSRN: or

Morton P.K. Pincus (Contact Author)

University of California, Irvine ( email )

Irvine, CA 92697-3125
United States
949-824-4062 (Phone)
949-725-2812 (Fax)

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