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The association between earnings forecast in IPOs prospectuses and earnings management: An empirical analysis

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  • Buchner, Axel
  • Mohamed, Abdulkadir
  • Saadouni, Brahim

Abstract

This paper examines the level of earnings management for large IPOs that provide earnings forecasts and those that do not provide forecasts in the IPO prospectus. Using a sample f 368 IPO firms listed on the London Stock Exchange between 1985 and 2012, we find that the level of earnings management is lower for IPOs that provided earnings forecasts, than for those which did not provide a forecast. This evidence is robust, controlling for endogeneity and sample selection. Further tests reveal that IPOs that provide forecasts outperform their counterparts in the long run, using various long term performance measures. Overall, our results suggest that earnings forecasts at the time of listing convey useful information to investors on the quality of the company listing in the market.

Suggested Citation

  • Buchner, Axel & Mohamed, Abdulkadir & Saadouni, Brahim, 2017. "The association between earnings forecast in IPOs prospectuses and earnings management: An empirical analysis," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 51(C), pages 92-105.
    • Handle: RePEc:eee:intfin:v:51:y:2017:i:c:p:92-105
    DOI: 10.1016/j.intfin.2017.08.008
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    More about this item

    Keywords

    Initial public offerings; Earnings forecasts; Earnings management; Long-run performance;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G1 - Financial Economics - - General Financial Markets
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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