Voluntary vs. Mandatory Management Earnings Prediction and Company Survival
American Accounting Association Annual Meeting Paper - Earnings Management Session
49 Pages Posted: 19 Apr 2015 Last revised: 25 Oct 2021
Date Written: July 24, 2020
This study explores a natural experiment that 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 a 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