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JIT Adoption: The Effects of LIFO Reserves and Financial Reporting and Tax Incentives

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  • MICHAEL R. KINNEY
  • WILLIAM F. WEMPE

Abstract

Using matched samples of JIT adopters and nonadopters, we examine the association of JIT adoption with firms' financial reporting and tax incentives, earnings†management histories, and LIFO reserve levels. We find evidence that adoption decisions are influenced by the interaction of firms' LIFO reserves with their income smoothing, debt covenant, and tax incentives. We also find that adoption is less likely for firms historically engaging in high degrees of earnings management, particularly when such firms have no substantial LIFO reserves. Our study extends earlier research demonstrating a relation between inventory valuation method and year†end inventory transactions, and documents a relation between earnings†management incentives and a fundamental supply†chain design choice.

Suggested Citation

  • Michael R. Kinney & William F. Wempe, 2004. "JIT Adoption: The Effects of LIFO Reserves and Financial Reporting and Tax Incentives," Contemporary Accounting Research, John Wiley & Sons, vol. 21(3), pages 603-638, September.
    • Handle: RePEc:wly:coacre:v:21:y:2004:i:3:p:603-638
    DOI: 10.1506/WYAW-JLGF-XU60-E8CQ
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    Cited by:

    1. Peter Harris, 2011. "Should Last In First Out Inventory Valuation Methods Be Eliminated?," Global Journal of Business Research, The Institute for Business and Finance Research, vol. 5(4), pages 53-67.
    2. Max Hewitt & Frank D. Hodge & Jamie H. Pratt, 2020. "Do Shareholders Assess Managers' Use of Accruals to Manage Earnings as a Negative Signal of Trustworthiness Even When its Outcome Serves Shareholders' Interests?," Contemporary Accounting Research, John Wiley & Sons, vol. 37(4), pages 2058-2086, December.

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