What question did this study set out to answer?

The research aims to understand how tax law changes influence firms' inventory accounting methods.

March 18, 2026

The Effects of the Thor Power Tool Decision on the LIFO/FIFO Choice.

RHRobert HalperinVisiting Nurse Service of New York WLWilliam N. LanenUniversity of Washington

Key Points

The research aims to understand how tax law changes influence firms' inventory accounting methods.
Examined the impacts of the Thor Power Tool case on accounting methods used for inventory reporting.
Hypothesized that firms would switch to LIFO for tax and financial reporting due to conformity rules.
Conducted empirical analyses on firms' inventory method changes during the year 1979.
Empirical data supports the hypothesis that firms shifted to LIFO during 1979 for tax reporting.
Analysis indicates that the change was largely driven by the implications of tax law.
Findings show limited use of LIFO beyond the year 1979.

Abstract

Abstract ABSTRACT: This note examines the extent to which firms affected by a change in the tax law respond by making changes in the accounting methods used for financial reporting. The specific tax issue considered is the Thor Power Tool case that limited the use of formula write-downs for inventories. Since LIFO could be approximated by formula write-downs, we hypothesize that affected firms will tend to switch to LIFO during 1979 (and only during 1979) for tax reporting purposes and (because of the LIFO conformity rule) for financial reporting purposes as well. The empirical analyses of inventory method changes are consistent with this hypothesis.

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