Voluntary Management Earnings Forecasts and Discretionary Accruals: Evidence from Danish Ipos

Posted: 3 Jun 2004

See all articles by Jeffrey Gramlich

Jeffrey Gramlich

Carson College of Business

Ole Sørensen

Copenhagen Business School - Department of Finance

Abstract

This paper seeks to determine whether Danish managers exercise discretionary accruals to reach earnings forecast targets they voluntarily specify in conjunction with initial public offerings (IPOs). Because the Danish accounting and legal environment is more permissive than the US, we use Denmark as a natural laboratory for learning how business would occur without strict rules, enforcement and sanctions. Danish managers often volunteer pro forma financial statements for results that are expected to occur subsequent to the IPO. We examine a sample of 58 Danish firms that issue voluntary management earnings forecasts in connection with IPOs that occur between 1984 and 1996. The evidence we uncover strongly suggests that pre-managed earnings are adjusted toward these targets. In contrast with Kasznik's (1999) results related to voluntarily forecasting American firms, managers of Danish firms exercise discretionary accruals to mitigate earnings forecast errors regardless of whether pre-managed earnings are less, or greater, than the IPO forecast amount.

Keywords: Earnings forecasts, discretionary accruals, Denmark, IPO

JEL Classification: M41, M43, M47

Suggested Citation

Gramlich, Jeffrey and Sørensen, Ole, Voluntary Management Earnings Forecasts and Discretionary Accruals: Evidence from Danish Ipos. Available at SSRN: https://ssrn.com/abstract=554488

Jeffrey Gramlich (Contact Author)

Carson College of Business ( email )

Wilson Rd.
College of Business
Pullman, WA 99164
United States

HOME PAGE: http://https://business.wsu.edu/research-faculty/institutes/hoops-institute/

Ole Sørensen

Copenhagen Business School - Department of Finance ( email )

Solbjerg Plads 3
Frederiksberg, DK-2000
Denmark

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