The Role of Financial Inflexibility in Explaining Accrual Anomaly

This study examines for the first time anomaly of accruals from the perspective of investment-based asset pricing theory. According to investment-based asset pricing theory, financial inflexibility can be the cause anomaly of accruals. According to the research literature three related sources of financial inflexibility are identified, we created a composite inflexibility index, based on the variables of investment irreversibility, leverage and financial constraint. In order to achieve the research goals, 5400 Month-firm is used during the period from 2008 to 2017. To test the research hypotheses Fama and French three-factor and four-factor of Polson, Fuff and Gray models are used. The models are fitted once using pooled data, then using time series methods.The results of the research show that the financial inflexibility leads to a positive risk premium in the stock level and investment portfolios and firms with low accruals gain higher future returns than firms with high accruals to compensate for the risk of financial inflexibility, Finally the positive (negative) relationship of the factor of financial inflexibility with inflexible portfolios (flexible portfolios) indicates that financial inflexibility independently subjects firms to common shocks.