Voluntary vs. Mandatory Management Earnings Prediction and Company Survival

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

Gounopoulos, Dimitrios and Kraft, Arthur Gerald and Skinner, Frank S., Voluntary vs. Mandatory Management Earnings Prediction and Company Survival (July 24, 2020). American Accounting Association Annual Meeting Paper - Earnings Management Session, Available at SSRN: https://ssrn.com/abstract=2595991 or http://dx.doi.org/10.2139/ssrn.2595991