Levels of voluntary disclosure in IPO prospectuses: an empirical analysis
Purpose - This paper aims to focus on Design/methodology/approach - The authors investigate the determinants and consequences of the varying levels of details provided in these forecasts. The research is based on a sample of 82 IPOs on the Euronext Paris market (2000-2002). Findings - The paper shows that only two variables are associated with highly detailed forecast disclosures: forecast horizon and firm age. It is also found that the forecast error decreases as the level of detail in the forecast disclosures increases. This finding is robust to a 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. Research limitations/implications - The paper suffers from at least two potential flaws. First, omitted variables, such as the possession of good news or proprietary costs. can influence both forecast errors and the level of detail of forecasts. Second, the negative association between the level of detail in forecast information and forecast errors may either show that detailed information leads to less forecast error or reflect a self-selection bias. Practical implications - This research could have implications for stock market regulators as it suggests that mandatory disclosure of highly detailed forecasts would improve the effeciency of the markets by reducing forecast error. Originality/value - This paper contributes to be literature by presenting evidence tha the way forecast information is disclosed in IPO prospectuses is of importance and by documenting a negative association between forecast error and the level of detail in forecast disclosures.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 6 (2007)
Issue (Month): 2 (May)
|Contact details of provider:|| Web page: http://www.emeraldinsight.com|
|Order Information:|| Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK|
Web: http://emeraldgrouppublishing.com/products/journals/journals.htm?id=raf Email:
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- La Porta, Rafael & Lopez-de-Silanes, Florencio & Schleifer, Andrei & Vishny, Robert, 2001.
"Investor Protection and Corporate Governance,"
Working Paper Series
rwp01-017, Harvard University, John F. Kennedy School of Government.
- La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert, 2000. "Investor protection and corporate governance," Scholarly Articles 29408126, Harvard University Department of Economics.
- Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert Vishny, "undated". "Investor Protection and Corporate Governance," Working Paper 19455, Harvard University OpenScholar.
- 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.
- Heckman, James J, 1979.
"Sample Selection Bias as a Specification Error,"
Econometric Society, vol. 47(1), pages 153-161, January.
- Mak, Y. T., 1994. "The voluntary review of earnings forecasts disclosed in IPO prospectuses," Journal of Accounting and Public Policy, Elsevier, vol. 13(2), pages 141-158.
- Leland, Hayne E & Pyle, David H, 1977.
"Informational Asymmetries, Financial Structure, and Financial Intermediation,"
Journal of Finance,
American Finance Association, vol. 32(2), pages 371-387, May.
- Hayne E. Leland and David H. Pyle., 1976. "Informational Asymmetries, Financial Structure, and Financial Intermediation," Research Program in Finance Working Papers 41, University of California at Berkeley.
- 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.
- Michael Firth, 1998. "IPO profit forecasts and their role in signalling firm value and explaining post-listing returns," Applied Financial Economics, Taylor & Francis Journals, vol. 8(1), pages 29-39.
- 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.
- 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, vol. 22(5), pages 377-400.
- Mak, Y. T., 1996. "Forecast disclosure by initial public offering firms in a low-litigation environment," Journal of Accounting and Public Policy, Elsevier, vol. 15(2), pages 111-136.
- 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.
- 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.
- Ross L. Watts, 1977. "Corporate Financial Statements, A Product of the Market and Political Processes," Australian Journal of Management, Australian School of Business, vol. 2(1), pages 53-75, April.
- Hughes, Patricia J., 1986. "Signalling by direct disclosure under asymmetric information," Journal of Accounting and Economics, Elsevier, vol. 8(2), pages 119-142, June.
- Brown, Philip & Clarke, Alex & How, Janice C. Y. & Lim, Kadir, 2000. "The accuracy of management dividend forecasts in Australia," Pacific-Basin Finance Journal, Elsevier, vol. 8(3-4), pages 309-331, July.
- 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, vol. 11(2), pages 225-240, April.
When requesting a correction, please mention this item's handle: RePEc:eme:rafpps:v:6:y:2007:i:2:p:131-149. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Virginia Chapman)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.