Stock Price Reactions to LIFO Adoptions: The Association between Excess Returns and LIFO Tax Savings

Abstract

Although long a topic of accounting research, little is known about the motives for or effects of voluntary changes in accounting techniques. Among the motives which have been suggested are attempts by managers to smooth reported earnings (Gordon [1964], Copeland [1968], Cushing [1969], White [1972], and Ronen and Sadan [1981]), to influence man- agement compensation, to reduce regulatory or political costs (Watts and Zimmerman [1978]), and to avoid bond covenant restrictions (Holthausen [1981]).' While some of these motives may be consistent with a "market value rule," they often fail to provide unambiguous accounting change predictions (e.g., which accounting changes result in lower..