Voluntary vs. Mandatory Management Earnings Forecasts in IPOs
44 Pages Posted: 19 Apr 2015 Last revised: 14 Mar 2019
Date Written: March 10, 2019
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: Suggested Citation