Earnings forecast disclosure regulation and earnings management: evidence from Taiwan IPO firms

Bikki Jaggi (), Chen-lung Chin, Hsiou-wei William Lin and Picheng Lee

Review of Quantitative Finance and Accounting, 2006, vol. 26, issue 3, 275-299

Abstract: This study examines whether the Taiwanese regulation requiring disclosure of earnings forecasts in the IPOs resulted in disclosure of more optimistic earnings forecasts and whether the forecast error was reduced more by manipulating the reported earnings rather than revising the earnings forecasts to meet the forecast error threshold. The study is based on 759 forecasts issued by the Taiwanese IPO firms from 1994 to 2001, i.e. 8-year period after the regulation was modified to increase the forecast error threshold to 20%. The findings show that the disclosure regulation resulted in more optimistic forecasts than conservative forecasts, especially for firms expecting better performance in the forecast year compared to the previous year. Firms disclosing optimistic earnings forecasts engaged more in manipulation of reported earnings than revision of forecasts to meet the forecast error threshold. These findings thus suggest that the disclosure regulation resulted in earnings manipulation, which reduced the quality of reported earnings. Copyright Springer Science + Business Media, Inc. 2006

Keywords: Earnings management; Disclosure regulation; Discretionary accruals; Mandatory earnings forecasts; Forecast error threshold (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (15)

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DOI: 10.1007/s11156-006-7434-2

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