The Predictability of Management Forecast Error: A Study of Australian IPO Disclosures

Neil Hartnett () and Jennifer Romcke
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Neil Hartnett: The University of Newcastle, Australia
Jennifer Romcke: The University of Newcastle, Australia

Multinational Finance Journal, 2000, vol. 4, issue 1-2, 101-132

Abstract: Contemporaneous evidence of corporate revenue and profit forecasting error is provided in a different institutional context, Australian sharemarket initial public offerings. This article extends the literature on company forecast risk by incorporating new proxies for forecasting error (float motive, subscription price premium, range of activities and internationalisation) and by refining others. The study investigates the association between earnings forecast risk and conventional ex-ante uncertainty proxies used to explain IPO underpricing. Ex-ante and ex-post explanatory variables are distinguished and a forecast error prediction model is tested. The results show revenue forecast errors were smaller and less sensitive than those for profit. Strong associations are reported between forecast error and float motive, audit quality and unanticipated industry activity. The link between earnings forecast error and proxies for initial public offering underpricing is observed. Predictability was poor regarding individual company forecast error, but improved for portfolio average forecasting error.

Keywords: error; forecast; IPO; prediction, profit; underpricing (search for similar items in EconPapers)
JEL-codes: D80 G14 M41 N27 (search for similar items in EconPapers)
Date: 2000
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Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:mfj:journl:v:4:y:2000:i:1-2:p:101-132

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