The impact of IFRS adoption on IPO management earnings forecasts in Australia

Forthcoming: International Journal of Accounting, Auditing and Taxation

51 Pages Posted: 11 Jan 2013 Last revised: 21 Jul 2022

Date Written: December 26, 2021

Abstract

We investigate the accuracy of management earnings forecasts under International Financial Reporting Standards (IFRS) in the context of an initial public offering (IPO). We observe a decline in management forecast errors (FEs) in Australia following the mandatory implementation of IFRS in 2005. Further evidence suggests that IPO management earnings forecasts become more conservative in post-IFRS periods. We argue that IFRS enables investors to better evaluate IPO firms’ performance and demand higher returns from firms that report inflated and inaccurate earnings forecasts. We also show that over-optimistic earnings forecasts and larger forecasting errors result in greater underpricing under the IFRS regime. Overall, this study suggests that IFRS, as a set of high-quality accounting standards, improved corporate disclosure quality and the information environment.

Keywords: IFRS, IPOs, information environment, forecast accuracy, accounting quality

JEL Classification: G14, G15, M41

Suggested Citation

Georgakopoulos, Georgios and Gounopoulos, Dimitrios and Huang, Chen and Patsika, Victoria, The impact of IFRS adoption on IPO management earnings forecasts in Australia (December 26, 2021). Forthcoming: International Journal of Accounting, Auditing and Taxation, Available at SSRN: https://ssrn.com/abstract=2199034 or http://dx.doi.org/10.2139/ssrn.2199034

Dimitrios Gounopoulos (Contact Author)

University of Bath ( email )

School of Management,
Wessex House, Claverton Down
Bath, BA2 7AY
United Kingdom

Chen Huang

affiliation not provided to SSRN

Victoria Patsika

Cardiff University ( email )

Aberconway Building
Colum Drive
Cardiff, Wales CF10 3EU
United Kingdom

No contact information is available for Georgios Georgakopoulos

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