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- Title
LIFO Adoption and the Tax Shield Substitution Effect.
- Authors
Trezevant, Robert H.
- Abstract
Consistent with the tax shield substitution effect, this study documents that firms that adopted LIFO in 1974 exhibit a negative association between the post-adoption change in their cost of goods sold and the post-adoption change in their interest expense. This negative association Is not observed for firms that retain FIFO. These results suggest that the capital structure and LIFO/FIFO choices are not independent of each other. A contribution of this study is that it investigates the response of tax shields to the change in a non-investment tax shield (i.e., cost of goods sold), thus providing evidence concerning the generalizability of the substitution effect.
- Subjects
TAXATION; COST of sales; LAST in, first out (Accounting); ORGANIZATIONAL change; CAPITAL structure; CORPORATE finance; INVESTMENTS
- Publication
Journal of the American Taxation Association, 1996, Vol 18, Issue 2, p18
- ISSN
0198-9073
- Publication type
Article