Inventory policy, accruals quality and information risk

Gopal V. KRISHNAN, Bin SRINIDHI, Lixin, Nancy SU

Research output: Journal PublicationsJournal Article (refereed)Researchpeer-review

8 Citations (Scopus)

Abstract

This paper provides evidence consistent with firms with Last-in-first-out (LIFO) inventory policy being priced by the market as having lower information risk than First-in-first-out (FIFO) firms. Furthermore, the paper shows that this pricing differential is sustained after controlling for accruals quality, suggesting that the inventory policy signals some information risk characteristics that are not captured by accruals quality measure. We investigate the relation between inventory policy and accruals quality and find that accruals quality is systematically worse for FIFO firms than for LIFO firms after controlling for correlated omitted variables and known firm attributes. These findings complement the currently established relationship between the cost of capital, market pricing and accruals quality by focusing on the need for understanding the incremental effects of individual accounting policies.
Original languageEnglish
Pages (from-to)369-410
Number of pages42
JournalReview of Accounting Studies
Volume13
Issue number2/3
DOIs
Publication statusPublished - 1 Sep 2008
Externally publishedYes

Fingerprint

Accruals quality
Inventory policy
Information risk
Pricing
Accounting policy
Incremental
Capital markets
Cost of capital
Omitted variables
Risk characteristics

Keywords

  • Accruals quality
  • Asset pricing
  • Cost of capital
  • Information risk
  • Inventory

Cite this

KRISHNAN, Gopal V. ; SRINIDHI, Bin ; SU, Lixin, Nancy. / Inventory policy, accruals quality and information risk. In: Review of Accounting Studies. 2008 ; Vol. 13, No. 2/3. pp. 369-410.
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Inventory policy, accruals quality and information risk. / KRISHNAN, Gopal V.; SRINIDHI, Bin; SU, Lixin, Nancy.

In: Review of Accounting Studies, Vol. 13, No. 2/3, 01.09.2008, p. 369-410.

Research output: Journal PublicationsJournal Article (refereed)Researchpeer-review

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