Management earnings forecasts and IPO performance: evidence of a regime change

Sabri Boubaker, Dimitrios Gounopoulos (), Antonios Kallias and Konstantinos Kallias
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Dimitrios Gounopoulos: Newcastle University
Antonios Kallias: University of Portsmouth
Konstantinos Kallias: University of Portsmouth

Review of Quantitative Finance and Accounting, 2017, vol. 48, issue 4, No 9, 1083-1121

Abstract: Abstract Companies undertaking initial public offerings (IPOs) in Greece were obliged to include next-year profit forecast in their prospectuses, until the regulation changed in 2001 to voluntary forecasting. Drawing evidence from IPOs issued in the period 1993–2015, this is the first study to investigate the effect of disclosure regime on management earnings forecasts and IPO long-term performance. The findings show mainly positive forecast errors (forecasts are lower than actual earnings) and higher long-term returns during the mandatory period, suggesting that the mandatory disclosure requirement causes issuers to systematically bias profit forecasts downwards as they opt for the safety of accounting conservatism. The mandatory disclosure requirement artificially improves IPO share performance. Overall, our results show that mandatory disclosure of earnings forecasts can impede capital market efficiency once it goes beyond historical financial information to involve compulsory projections of future performance.

Keywords: Management earnings forecasts; Mandatory disclosure; Voluntary disclosure; Forecast accuracy; IPOs; Greece (search for similar items in EconPapers)
JEL-codes: G22 G30 M41 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (11)

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DOI: 10.1007/s11156-016-0579-8

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