The association between earnings forecast in IPOs prospectuses and earnings management: An empirical analysis

Axel Buchner, Abdulkadir Mohamed and Brahim Saadouni

Journal of International Financial Markets, Institutions and Money, 2017, vol. 51, issue C, 92-105

Abstract: This paper examines the level of earnings management for large IPOs that provide earnings forecasts and those that do not provide forecasts in the IPO prospectus. Using a sample f 368 IPO firms listed on the London Stock Exchange between 1985 and 2012, we find that the level of earnings management is lower for IPOs that provided earnings forecasts, than for those which did not provide a forecast. This evidence is robust, controlling for endogeneity and sample selection. Further tests reveal that IPOs that provide forecasts outperform their counterparts in the long run, using various long term performance measures. Overall, our results suggest that earnings forecasts at the time of listing convey useful information to investors on the quality of the company listing in the market.

Keywords: Initial public offerings; Earnings forecasts; Earnings management; Long-run performance (search for similar items in EconPapers)
JEL-codes: G1 G11 G17 G2 G28 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:51:y:2017:i:c:p:92-105

DOI: 10.1016/j.intfin.2017.08.008

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