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Levels of voluntary disclosure in IPO prospectuses: an empirical analysis

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Abstract

This paper focuses on how forecasts information is disclosed in IPO prospectuses. In France, managers report either detailed forecasts or only a brief summary. We investigate the determinants and consequences of the varying levels of detail provided in these forecasts. Based on a sample of 82 IPOs on the Euronext Paris market (2000-2002), we show that only two variables are associated with highly detailed forecast disclosures: forecast horizon and firm age. We also find that the forecast error decreases as the level of detail in the forecast disclosures increases. This finding is robust to our reverse causality test (Heckman two-stage self-selection procedure) and suggests that the level of detail in forecast disclosures enhances the reliability of earnings forecasts.

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Bibliographic Info

Paper provided by ESSEC Research Center, ESSEC Business School in its series ESSEC Working Papers with number DR 06001.

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Length: 41 pages
Date of creation: Jan 2006
Date of revision:
Handle: RePEc:ebg:essewp:dr-06001

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Postal: ESSEC Research Center, BP 105, 95021 Cergy, France
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Web page: http://www.essec.edu/
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Keywords: IPO; Forecast disclosure; forecast error;

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References

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  1. Chen, Gongmeng & Firth, Michael & Krishnan, Gopal V., 2001. "Earnings forecast errors in IPO prospectuses and their associations with initial stock returns," Journal of Multinational Financial Management, Elsevier, Elsevier, vol. 11(2), pages 225-240, April.
  2. Jaggi, Bikki, 1997. "Accuracy of forecast information disclosed in the IPO prospectuses of Hong Kong companies," The International Journal of Accounting, Elsevier, vol. 32(3), pages 301-319.
  3. Hughes, Patricia J., 1986. "Signalling by direct disclosure under asymmetric information," Journal of Accounting and Economics, Elsevier, Elsevier, vol. 8(2), pages 119-142, June.
  4. Alain Schatt & Thierry Roy, 2002. "Analyse Empirique Des Ecarts De Previsions De Benefices Dans Les Prospectus D'Introduction : Le Cas Francais," Post-Print halshs-00584529, HAL.
  5. T.Y. Cheng & Michael Firth, 2000. "An Empirical Analysis of the Bias and Rationality of Profit Forecasts Published in New Issue Prospectuses," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 27(3&4), pages 423-446.
  6. Brown, Philip & Clarke, Alex & How, Janice C. Y. & Lim, Kadir, 2000. "The accuracy of management dividend forecasts in Australia," Pacific-Basin Finance Journal, Elsevier, Elsevier, vol. 8(3-4), pages 309-331, July.
  7. Mak, Y. T., 1994. "The voluntary review of earnings forecasts disclosed in IPO prospectuses," Journal of Accounting and Public Policy, Elsevier, Elsevier, vol. 13(2), pages 141-158.
  8. Vijay Jog & Bruce J. McConomy, 2003. "Voluntary Disclosure of Management Earnings Forecasts in IPO Prospectuses," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 30(1-2), pages 125-168.
  9. Ross L. Watts, 1977. "Corporate Financial Statements, A Product of the Market and Political Processes," Australian Journal of Management, Australian School of Business, Australian School of Business, vol. 2(1), pages 53-75, April.
  10. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
  11. T.Y. Cheng & Michael Firth, 2000. "An Empirical Analysis of the Bias and Rationality of Profit Forecasts Published in New Issue Prospectuses," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 27(3-4), pages 423-446.
  12. Mak, Y. T., 1996. "Forecast disclosure by initial public offering firms in a low-litigation environment," Journal of Accounting and Public Policy, Elsevier, Elsevier, vol. 15(2), pages 111-136.
  13. Michael Firth, 1998. "IPO profit forecasts and their role in signalling firm value and explaining post-listing returns," Applied Financial Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 8(1), pages 29-39.
  14. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert, 2000. "Investor protection and corporate governance," Journal of Financial Economics, Elsevier, Elsevier, vol. 58(1-2), pages 3-27.
  15. Lee, Philip & Stokes, Donald & Taylor, Stephen & Walter, Terry, 2003. "The association between audit quality, accounting disclosures and firm-specific risk: Evidence from initial public offerings," Journal of Accounting and Public Policy, Elsevier, Elsevier, vol. 22(5), pages 377-400.
  16. Hayne E. Leland and David H. Pyle., 1976. "Informational Asymmetries, Financial Structure, and Financial Intermediation," Research Program in Finance Working Papers, University of California at Berkeley 41, University of California at Berkeley.
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Cited by:
  1. C. Baccouche & Olfa Errais & Karima Mzoughi, 2010. "Les déterminants de la publication volontaire d'informations sociales : cas des entreprises tunisiennes," Post-Print halshs-00526423, HAL.
  2. Isabelle Martinez & Emmanuelle Negre, 2011. "Les déterminants de la communication volontaire des entreprises cibles d'OPA/OPE : le cas des synergies," Post-Print hal-00650551, HAL.
  3. Mazzi, Chiara, 2011. "Family business and financial performance: Current state of knowledge and future research challenges," Journal of Family Business Strategy, Elsevier, vol. 2(3), pages 166-181.
  4. Emmanuelle Negre & Isabelle Martinez, 2012. "Une Analyse Lexicale Des Communiques De Presse Volontaires Emis Lors Des Opa/Ope : Quels Profils De Diffusion ?," Post-Print hal-00936567, HAL.

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