Is a company's decision to allocate common costs to its industry segments related to its overall income strategy? The results of this study indicate that companies that allocate common costs tend to be larger, to have lower debt-equity ratios, to have higher rates of return on common stock, and to use the LIFO method of inventory valuation more than companies that do not so allocate or that report they do not have common costs. This evidence implies that companies that allocate common costs may be influenced by the same economic factors as companies following an overall income-reducing financial reporting strategy.
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