The determinants of LIFO layer liquidations: Tax minimization and agency cost factors.
AuthorFrankel, Micah Paul
AdvisorDhaliwal, Dan S.
MetadataShow full item record
PublisherThe University of Arizona.
RightsCopyright © is held by the author. Digital access to this material is made possible by the University Libraries, University of Arizona. Further transmission, reproduction or presentation (such as public display or performance) of protected items is prohibited except with permission of the author.
AbstractPrior LIFO studies have assumed that a LIFO-use firm will avoid liquidating old low-cost inventory layers due to the resulting tax penalty. However, a LIFO-use firm can actually receive a tax subsidy by liquidating inventory layers in a low marginal tax year, thus avoiding the need to liquidate in future higher tax years. This leads to the prediction that low marginal tax rate LIFO firms account for the majority of LIFO liquidations. Using several measures of a firm's marginal tax rate, and controlling for other potential determinants of LIFO liquidations, this prediction receives strong empirical support. The other potential determinants controlled for which are significantly associated with liquidations include: the probability of violating debt covenants, firm specific sales, industry specific production, investment and financing factors (PIFs) and economy wide factors.
Degree ProgramBusiness Administration