Voluntary vs. Mandatory Management Earnings Forecasts in IPOs

44 Pages Posted: 19 Apr 2015 Last revised: 14 Mar 2019

See all articles by Dimitrios Gounopoulos

Dimitrios Gounopoulos

University of Bath

Arthur G. Kraft

City University London - Cass Business School

Frank S. Skinner

Brunel University

Date Written: March 10, 2019

Abstract

This study explores a natural experiment which involves the change in the regulation of earnings forecast disclosures from mandatory to voluntary in firms’ IPO prospectuses. Findings indicate a behavioural alteration with pessimistic earnings forecasts during the mandatory era turning optimistic in the voluntary period. Additionally, we document that IPO first-day returns are lower in the voluntary period and that IPO firms with high forecast errors have lower underpricing. Finally, our results suggest that firms with high forecast errors have shorter time to survive in subsequent periods following the offering. Self-selection estimation and other various tests confirm our results.

Keywords: Earnings management, Mandatory and Voluntary disclosure environments, Forecast accuracy, IPOs

JEL Classification: G24, G30, M41

Suggested Citation

Gounopoulos, Dimitrios and Kraft, Arthur Gerald and Skinner, Frank S., Voluntary vs. Mandatory Management Earnings Forecasts in IPOs (March 10, 2019). Available at SSRN: https://ssrn.com/abstract=2595991 or http://dx.doi.org/10.2139/ssrn.2595991

Dimitrios Gounopoulos (Contact Author)

University of Bath ( email )

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

Arthur Gerald Kraft

City University London - Cass Business School ( email )

London, EC2Y 8HB
Great Britain

Frank S. Skinner

Brunel University ( email )

Kingston Lane
Uxbridge, Middlesex UB8 3PH
United Kingdom

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