The LIFO/FIFO choice: an asymmetric information approach

Article Abstract:

A model is developed to help explain observations concerning a switch from 'first-in, first-out' (FIFO) inventory valuation to 'last-in, first-out' (LIFO) valuation. The model is based on the information symmetry between investors, and managers who quietly show their private information through their LIFO/FIFO choice. The results indicate that: securities values will increase if all firms in an industry switch to LIFO; and securities prices can drop if only some firms in an industry switch to LIFO. A discussion by John Fellingham is included.

Accrual basis accounting

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The Incremental information content of financial statement disclosures: the case of LIFO inventory liquidations

Article Abstract:

The relevance of LIFO inventory liquidations to firms' securities prices is examined. The abnormal share price reaction during earning announcement periods when LIFO inventory liquidation information is assimilated by the market is documented. No abnormal price reactions are noted on earnings announcement dates, but cross sectional returns for the ten day period surrounding earnings announcement are positively associated with the impact of LIFO liquidations. A discussion of the results by Morton Pincus is included.

Accounting and auditing, Financial statements

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LIFO liquidations

Article Abstract:

Companies liquidating inventories do not significantly differ from other firms in market equity value, despite the tendency for last-in, first-out (LIFO) companies to be larger than non-LIFO firms. In other respects, LIFO companies are much different than other firms, especially changes in inventory and sales. LIFO companies have negative median and mean changes for those variables, while non-LIFO firms inventory and sales variables are positive.

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