What question did this study set out to answer?

This research aims to evaluate how accounting changes in inventory valuation affect stock prices during an inflationary period.

Stock Price and Risk Related to Accounting Changes in Inventory Valuation.

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Analysis shows changes in inventory valuation impact stock prices, indicating investor reliance on earnings versus economic value.

This research aims to evaluate how accounting changes in inventory valuation affect stock prices during an inflationary period.
Utilized the market model to differentiate stock price changes from broader market movements.
Measured stock price changes associated with LIFO method shifts in inventory valuation.
Establishes the time path of relative risk around the accounting change dates.
Stock prices decrease for firms changing to the LIFO method based on reported earnings.
Investors relying on economic value may see stock prices increase despite accounting changes.
The study outlines the complexities of estimating relative risk due to non-constant variables.

Shyam Sunder (1975) studied this question.

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