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

40 Pages Posted: 11 Jan 2013 Last revised: 12 May 2020

See all articles by Michael Firth

Michael Firth

Lingnan University - Department of Finance and Insurance

Georgios Georgakopoulos

affiliation not provided to SSRN

Dimitrios Gounopoulos

University of Bath

Chen Huang

affiliation not provided to SSRN

Victoria Patsika

Cardiff University

Date Written: May 5, 2020

Abstract

We find evidence that the adoption of International Financial Reporting Standards (IFRS) improves corporate disclosure. Specifically, we document that forecast errors of the predicted earnings issued during the Initial Public Offering (IPO) have significantly reduced in Australia following the mandatory implementation of IFRS in 2005. The evidence further suggests that managers are more likely to release IPO earnings forecasts towards conservatism in post-IFRS periods. We argue that IFRS enables investors better evaluate IPO firms’ performance and demand higher returns from firms which reported inflated and inaccurate earnings forecasts. Our evidence shows that over-optimistic earnings forecasts and larger forecasting errors results in greater underpricing under the IFRS regime. Overall, this study confirms that IFRS is a set of high-quality accounting standards which improve the information environment and accounting quality.

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

JEL Classification: G14, G15, M41

Suggested Citation

Firth, Michael and Georgakopoulos, Georgios and Gounopoulos, Dimitrios and Huang, Chen and Patsika, Victoria, The impact of IFRS adoption on IPO management earnings forecasts in Australia (May 5, 2020). Available at SSRN: https://ssrn.com/abstract=2199034 or http://dx.doi.org/10.2139/ssrn.2199034

Michael Firth

Lingnan University - Department of Finance and Insurance ( email )

Castle Peak Road
Tuen Mun, New Territories
Hong Kong
China
+852 2616 8160 (Phone)
+852 2466 4751 (Fax)

Georgios Georgakopoulos

affiliation not provided to SSRN ( email )

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

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