Forecasts in IPO Prospectuses: The Effect of Corporate Governance on Earnings Management

28 Pages Posted: 25 Feb 2014

See all articles by Denis Cormier

Denis Cormier

University du Quebec a Montreal

Pascale Lapointe‐Antunes

Brock University - Faculty of Business

Bruce J. McConomy

Wilfrid Laurier University

Multiple version iconThere are 3 versions of this paper

Date Written: January/February 2014

Abstract

Prior research suggests that managers may use earnings management to meet voluntary earnings forecasts. We document the extent of earnings management undertaken within Canadian Initial Public Offerings (IPOs) and study the extent to which companies with better corporate governance systems are less likely to use earnings management to achieve their earnings forecasts. In addition, we test other factors that differentiate forecasting from non‐forecasting firms, and assess the impact of forecasting and corporate governance on future cash flow prediction. We find that firms with better corporate governance are less likely to include a voluntary earnings forecast in their IPO prospectus. In addition, we find that while IPO firms use accruals management to meet forecasts; the informativeness of the discretionary accruals depends on whether or not the firm would have missed its forecast without the use of discretionary accruals.

Keywords: IPO, corporate governance, earnings management, management earnings forecasts

Suggested Citation

Cormier, Denis and Lapointe-Antunes, Pascale and McConomy, Bruce J., Forecasts in IPO Prospectuses: The Effect of Corporate Governance on Earnings Management (January/February 2014). Journal of Business Finance & Accounting, Vol. 41, Issue 1-2, pp. 100-127, 2014. Available at SSRN: https://ssrn.com/abstract=2400805 or http://dx.doi.org/10.1111/jbfa.12060

Denis Cormier (Contact Author)

University du Quebec a Montreal ( email )

P.O. Box 8888, Downtown Station
Succursale Centre Ville School of Management 315 rue Ste-Catherine Est
Montreal, Quebec H3C 3P8
Canada
514-987-3000, ext. 8358 (Phone)
514-987-6629 (Fax)

Pascale Lapointe-Antunes

Brock University - Faculty of Business ( email )

St. Catharines, Ontario L2S 3A1
Canada
905-688-5550, 5251 (Phone)
905-688-9779 (Fax)

HOME PAGE: http://www.bus.brocku.ca/faculty/faculty.php?id=139&d=Accounting

Bruce J. McConomy

Wilfrid Laurier University ( email )

Waterloo, Ontario N2L 3C5
Canada
519-884-0710, x2890 (Phone)
519-884-0201 (Fax)

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