Voluntary Disclosure of Management Earnings Forecasts in IPO Prospectuses

Posted: 26 May 2003

See all articles by Bruce J. McConomy

Bruce J. McConomy

Wilfrid Laurier University

Vijay M. Jog

Carleton University - Eric Sprott School of Business

Abstract

Asymmetric information and mechanisms for its resolution in the initial public offering (IPO) process are subjects of extensive research and debate. In this paper, we investigate the impact of one such mechanism, namely voluntary disclosure of management earnings forecasts by issuers of IPOs, as a means of reducing asymmetric information as well as ex ante uncertainty. Our focus is on the relative importance of this voluntary disclosure mechanism on both IPO underpricing and post-issue return performance. Our results indicate that management earnings forecasts provide important and incremental information compared to other means of reducing asymmetric information, and these disclosures appear to improve the environment of IPO issuance. For example, our underpricing results show that firms that choose to provide forecasts leave "less money on the table" with a lower degree of underpricing. In terms of post-issue performance, firms whose forecasts turn out to be optimistic are penalized significantly relative to other forecasters and non-forecasters.

Keywords: voluntary disclosure, IPO, under pricing, post-issue performance

JEL Classification: G24, G34, G38, M41, M43, M45, D82

Suggested Citation

McConomy, Bruce J. and Jog, Vijay M., Voluntary Disclosure of Management Earnings Forecasts in IPO Prospectuses. Journal of Business, Finance & Accounting, Vol. 30 January/March 2003. Available at SSRN: https://ssrn.com/abstract=402261

Bruce J. McConomy (Contact Author)

Wilfrid Laurier University ( email )

Waterloo, Ontario N2L 3C5
Canada
519-884-0710, x2890 (Phone)
519-884-0201 (Fax)

Vijay M. Jog

Carleton University - Eric Sprott School of Business ( email )

1125 Colonel By Drive
Ottawa, Ontario K1S SB6
Canada
613-520-2600 (Phone)
613-520-4427 (Fax)

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