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

Author

Listed:
  • Sabri Boubaker

    (Groupe ESC Troyes
    Université Paris Est)

  • Dimitrios Gounopoulos

    () (Newcastle University)

  • Antonios Kallias

    (University of Portsmouth)

  • Konstantinos Kallias

    (University of Portsmouth)

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.

Suggested Citation

  • Sabri Boubaker & Dimitrios Gounopoulos & Antonios Kallias & Konstantinos Kallias, 2017. "Management earnings forecasts and IPO performance: evidence of a regime change," Review of Quantitative Finance and Accounting, Springer, vol. 48(4), pages 1083-1121, May.
  • Handle: RePEc:kap:rqfnac:v:48:y:2017:i:4:d:10.1007_s11156-016-0579-8
    DOI: 10.1007/s11156-016-0579-8
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    References listed on IDEAS

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    Keywords

    Management earnings forecasts; Mandatory disclosure; Voluntary disclosure; Forecast accuracy; IPOs; Greece;

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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