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Dividend behavior surrounding LIFO adoption
Author(s) -
Ettredge Michael,
Youn Kim Jeong
Publication year - 1994
Publication title -
review of financial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.347
H-Index - 41
eISSN - 1873-5924
pISSN - 1058-3300
DOI - 10.1016/1058-3300(94)90004-3
Subject(s) - dividend , fifo and lifo accounting , cash flow , earnings , operating cash flow , economics , monetary economics , business , cash flow statement , econometrics , accounting , finance , fifo (computing and electronics) , computer science , computer hardware
This study investigates the influence of LIFO adoption on changes in cash dividends. Descriptive studies of dividend policy have found that changes in cash dividends are positively associated with both operating cash flows and accounting earnings. LIFO adoption is interesting because it typically decreases earnings while increasing cash flows through deferral of U.S. taxes. We regress changes in annual cash dividends against a proxy for the earnings effect and the cash flow effect of LIFO usage, as well as additional control variables. The model is estimated for each of five years, centered on the adoption year, using a sample of 361 LIFO adopters. The results suggest that adoption year changes in cash dividends are associated with the negative earnings effect rather than the positive cash flow effect of LIFO adoption.