The Predictability of Management Forecast Error: A Study of Australian IPO Disclosures
32 Pages Posted: 8 Jul 2015
Date Written: July 7, 2015
Abstract
Contemporaneous evidence of corporate revenue and profit forecasting error is provided in a different institutional context, Australian sharemarket initial public offerings. This article extends the literature on company forecast risk by incorporating new proxies for forecasting error (float motive, subscription price premium, range of activities and internationalisation) and by refining others. The study investigates the association between earnings forecast risk and conventional ex-ante uncertainty proxies used to explain IPO underpricing. Ex-ante and ex-post explanatory variables are distinguished and a forecast error prediction model is tested. The results show revenue forecast errors were smaller and less sensitive than those for profit. Strong associations are reported between forecast error and float motive, audit quality and unanticipated industry activity. The link between earnings forecast error and proxies for initial public offering underpricing is observed.
Keywords: error; forecast; IPO; prediction, profit; underpricing
JEL Classification: D80, G14, M41, N27
Suggested Citation: Suggested Citation