The Effect of Accruals on the Relationship of External Financing and Future Stock Returns

Anomalies of market represent failure of pricing models or inefficiency of market. Some kind of anomalies that have been prevailed in the capital markets in recent years are accruals anomalies (effect of accruals on future stock returns) and the external financing anomalies (effect of external finance on future stock returns). Main objective of the present study is to investigate the effect of accruals on relationship of the external financing with size-scaled future stock returns. The sample of the present study includes 80 companies listed in Tehran Stock Exchange in the period of 1384 to 1390. Findings suggest that the relationship of accruals with future stock returns is positive and significant and external financing is not significantly associated with future stock returns. These findings are not consistent with the basic theory. Then after adding accruals to the relationship of external financing with future stock returns the results changed and this relationship appeared negative and significant that reflects the anomalies of external financing. Thus، paying simultaneous attention to accruals and external financing is important.