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Voluntary management earnings forecasts and discretionary accruals: evidence from Danish IPOs


  • Jeffrey Gramlich
  • Ole Sørensen


This paper seeks to determine whether Danish managers exercise discretionary accruals to reach earnings forecast targets they voluntarily specify in conjunction with initial public offerings (IPOs). Because the Danish accounting and legal environment is more permissive than the US, we use Denmark as a natural laboratory for learning how business would occur without strict rules, enforcement and sanctions. Danish managers often volunteer pro forma financial statements for results that are expected to occur subsequent to the IPO. We examine a sample of 58 Danish firms that issue voluntary management earnings forecasts in connection with IPOs that occur between 1984 and 1996. The evidence we uncover strongly suggests that pre-managed earnings are adjusted toward these targets. In contrast with Kasznik's (1999) results related to voluntarily forecasting American firms, managers of Danish firms exercise discretionary accruals to mitigate earnings forecast errors regardless of whether pre-managed earnings are less, or greater, than the IPO forecast amount.

Suggested Citation

  • Jeffrey Gramlich & Ole Sørensen, 2004. "Voluntary management earnings forecasts and discretionary accruals: evidence from Danish IPOs," European Accounting Review, Taylor & Francis Journals, vol. 13(2), pages 235-259.
  • Handle: RePEc:taf:euract:v:13:y:2004:i:2:p:235-259 DOI: 10.1080/0963818042000203338

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    References listed on IDEAS

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    Cited by:

    1. Denis Cormier & Pascale Lapointe-Antunes & Bruce J. McConomy, 2014. "Forecasts in IPO Prospectuses: The Effect of Corporate Governance on Earnings Management," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 41(1-2), pages 100-127, January.
    2. Modibbo Abubakar, 2016. "Effect Of Audit Quality And Corporate Governance On Real Activities Manipulation In Nigerian Banks," Proceedings of Economics and Finance Conferences 4206739, International Institute of Social and Economic Sciences.
    3. Daoping (Steven) He & David C. Yang & Liming Guan, 2010. "Earnings management and the performance of seasoned private equity placements: Evidence from Japanese issuers," Managerial Auditing Journal, Emerald Group Publishing, vol. 25(6), pages 569-590, June.
    4. Cormier, Denis & Martinez, Isabelle, 2006. "The association between management earnings forecasts, earnings management, and stock market valuation: Evidence from French IPOs," The International Journal of Accounting, Elsevier, vol. 41(3), pages 209-236.

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