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Voluntary profit forecast disclosures, IPO pricing revisions and after-market earnings drift

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  • McGuinness, Paul B.

Abstract

Prospectus profit forecasts (PPF) constitute one of the most important discretionary disclosure items in an IPO. I examine such disclosures in the Hong Kong market, where both IPO activity and PPF disclosure rates are at high levels. The median forecast typically ‘underestimates’ future earnings by around 6%. More importantly, PPF disclosure exhibits a strong inverse association with pre-listing owners' retained equity levels (Hughes, 1986; and Li and McConomy, 2004). PPF disclosure is thus more likely in IPOs raising more capital and generating larger floats. I also demonstrate a strong link between PPF disclosure and post-IPO earnings drift.

Suggested Citation

  • McGuinness, Paul B., 2016. "Voluntary profit forecast disclosures, IPO pricing revisions and after-market earnings drift," International Review of Financial Analysis, Elsevier, vol. 46(C), pages 70-83.
    • Handle: RePEc:eee:finana:v:46:y:2016:i:c:p:70-83
    DOI: 10.1016/j.irfa.2016.04.005
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