Analysis reveals the trade-off between incentive effects and tax gains in different inventory accounting methods.
Argues that investors choose an inventory accounting method to optimize the trade-off between incentive effect and tax gain. Role of manager in choosing the accounting policy; Description of setting; Analysis of cost trade-off between incentive effect and tax gain; First in, first out (FIFO) versus last in, first out (LIFO).
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Bar-Yosef et al. (1992) studied this question.
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