Associations between management forecast accuracy and pricing of IPOs in Athens Stock Exchange

This study examines the earnings forecast accuracy of newly listed companies on the Athens Stock Exchange and further investigates the relationship between earnings forecast and pricing of IPOs. It uses a unique dataset of 208 IPOs, which were floated during the period of January 1994 to December 2001 in the Athens Stock Exchange. The results suggest that investors are able to anticipate forecast errors at the time of listing. Pricing of IPOs indicate that firms with negative earnings forecast (pessimistic) are associated with low level of underpricing while optimistic management earning forecast can be a signal for high initial returns. Three variables - age of the IPOs, ownership by insiders and industry classification significantly contribute towards accuracy of earnings forecast

Investor Skepticism v. Investor Confidence: Why the New Research Analyst Reforms Will Harm Investors

Part I of this Article provides an overview of research analysts and their basic functions, including a discussion of sell-side analysts\u27 role in the market\u27s recent boom and bust. Part II examines the conflicts of interest that have plagued sell-side research, and Part III reviews the Regulatory Actions that are meant to address these conflicts. In Part IV, the author will make the case for encouraging, rather than lessening, investor skepticism in sell-side research and will explain why the Regulatory Actions are not likely to improve the performance of sell-side analysts. Finally, Part V will offer a simpler proposal to address the sell-side analyst issue. While there may not be a solution to the maybe not problem, the information gap between institutional investors and retail investors regarding the weaknesses of sell-side research can be eliminated, which would allow retail investors to benefit from the value of sell-side research while also granting them the opportunity to properly protect themselves from its weaknesses. Akin to the Surgeon General\u27s warning for cigarette manufacturers, this Article proposes that sell-side analysts and their firms be required to prominently include, with all research, a short and clear warning from the United States Securities and Exchange Commission ( SEC ), regarding the historical weaknesses of sell-side research

The Impact of the CSRC Regulation No. 12-1996 on the Credibility of Chinese IPO Earnings Forecasts

This study examines whether the Chinese Securities Regulatory Commission (the CSRC) Regulation No. 12-1996, Announcement of Some Rules on the Issuance of Shares, may enhance the credibility of management earnings forecasts in Chinese IPO prospectuses. Using a sample of 858 IPO earnings forecasts over the period 1991-2005, we find that earnings forecasts have been less optimistic and more accurate after the regulation was promulgated on December 26, 1996. Overall, our findings suggest that the CSRC Regulation No. 12-1996 can improve the reliability of Chinese IPO earnings forecasts

Management earnings forecasts and IPO performance: evidence of a regime change

Companies undertaking initial public offerings (IPOs) in Greece were obliged to include next-year profit forecast in their prospectuses, until the regulation changed in 2001 to voluntary forecasting. Drawing evidence from IPOs issued in the period 1993–2015, this is the first study to investigate the effect of disclosure regime on management earnings forecasts and IPO long-term performance. The findings show mainly positive forecast errors (forecasts are lower than actual earnings) and higher long-term returns during the mandatory period, suggesting that the mandatory disclosure requirement causes issuers to systematically bias profit forecasts downwards as they opt for the safety of accounting conservatism. The mandatory disclosure requirement artificially improves IPO share performance. Overall, our results show that mandatory disclosure of earnings forecasts can impede capital market efficiency once it goes beyond historical financial information to involve compulsory projections of future performance

CORPORATE GOVERNANCE AND MANAGEMENT EARNINGS FORECAST QUALITY: EVIDENCE FROM FRENCH IPOS

International audienceThis study examines whether corporate governance attributes have an effect on the quality of financial disclosure. Specifically, we examine the association between board attributes, ownership retained, auditor quality, and underwriter reputation and management earnings forecast quality measured by management earnings forecast accuracy and bias. Using 117 French IPOs, we find that management earnings forecast quality is significantly associated with some corporate governance attributes. For the board of directors, we find that IPO firms are more likely to issue less accurate and more optimistic earnings forecast when the board size is large. We also find that IPO firms are more likely to issue more accurate and more conservative earnings forecast when the proportion of independent directors on the board is higher. However, CEO duality is not significantly associated with management earnings forecast quality. For ownership retained, we find that IPO firms are more likely to issue more accurate and more conservative earnings forecast when the proportion of shares retained by insiders is higher. With respect to auditor quality, our results show that auditor quality has no significant influence on management earnings forecast quality. Finally, concerning underwriter reputation, our results show that IPO firms are more likely to issue less accurate but more conservative earnings forecast when the IPO firm is underwritten by a more prestigious underwriter. Our results provide evidence that financial disclosure quality is higher in firms with properly structured board of directors. These findings have implications for policy makers and market participants. Potential investors should consider the firm specific as well as corporate governance characteristics as they evaluate management earnings forecast quality

The Economics of Conflicts of Interest in Financial Institutions

A conflict of interest exists when a party to a transaction could potentially make a gain from taking actions that are detrimental to the other party in the transaction. This paper examines the economics of conflicts of interest in financial institutions and reviews the growing empirical literature (mostly focused on analysts) on the economic implications of these conflicts. Economic analysis shows that, although conflicts of interest are omnipresent when contracting is costly and parties are imperfectly informed, there are important factors that mitigate their impact and, strikingly, it is possible for customers of financial institutions to benefit from the existence of such conflicts. The empirical literature reaches conclusions that differ across types of conflicts of interest, but overall these conclusions are more ambivalent and certainly more benign than the conclusions drawn by journalists and politicians from mostly anecdotal evidence. Though much has been made of conflicts of interest arising from investment banking activities, there is no consensus in the empirical literature supporting the view that conflicts resulting from these activities had a systematic adverse impact on customers of financial institutions.

Development of a Model for Identification of Reasons for Deviation in Forecasts

Most organizations use forecasting techniques in order to achieve their goals and to reduce risk in uncertain conditions and varying situations. Forecasting by senior managers plays a very important role in the success or failure of organization and company projects as well as their affairs. However, the scope of forecasting has not yet structured or regulated and there is no approved or special conceptual framework for it, especially in relation to the reasons decisions of mangers deviate while forecasting, which can have a crucial influence on the whole organization. The aim of this study is to develop a conceptual model of the reasons for deviation from forecasting by senior managers. To understand the subject, a systematic review and meta-analysis of the research and literature was carried out. A conceptual model was developed according to the results of this research and the data from a focus group. The results of meta-analysis show that trends in optimistic and pessimistic forecasting and senior managers are the main reasons for deviations from forecasting by management. Moreover, it did not confirm that voluntary forecasts are responsible for increased accuracy in forecasting by management, and that there are still contradictions in this field. The results of our meta-analysis also indicated that some studies considered voluntary disclosure of forecasting as a factor in the reliability of the forecasting. Some researchers consider it as a factor of an optimistic trend of forecasting and others consider it as a factor effecting deviation from forecasting by management directly due to the individual motivation of managers and inaccuracy of information on which the decisions are made. According to the findings, it was not confirmed that voluntary forecasting on its own is a factor in the accuracy of forecasting

Examining IPO Success In The Emerging Growth Enterprise Market Of China

Adopting a sample of the initial 243 IPOs from the emerging Growth Enterprise Market of China (GEMC) over the 2009 to 2011 period, this study develops a regression model to investigate the relationships between these factors and suggests that the firm’s net profit and its growth rate substantively determine the IPO volume. In addition, this study adopts probit models to test the influence of the four factors on IPO likelihood, and shows that: 1) fundraising amount, as one of the most significant IPO determinants, is positively associated with IPO probability on the new listing market; 2) the net profit, as a fundamental IPO determinant, is positively associated with IPO probability, but also with other indicators, which demonstrates the fact that the GEMC is a profit-preferring listing venue; 3) the net assets determine IPO probability but not IPO volume on the market

ON THE JOURNEY OF OVERSEAS LISTING: AN EMPIRICAL ANALYSIS ON CHINESE ENTERPRISES TO LIST ON THE HONG KONG STOCK EXCHANGE

The thesis, empirically investigates issues pertinent to the partial privatization of Chinese initial public offerings at home and abroad, especially on issues relating to Chinese enterprises‘ seeking overseas listings. Based on the asymmetric information hypotheses on initial public offerings (IPOs) and cross-border flotation literature, the proposed research includes both short-run and long-run methods, and covers the entire offering process of Chinese firms‘ going public in overseas markets. The investigation begins with an overview of Hong Kong‘s and China mainland‘s financial markets in Chapter II. The limitation of development in the domestic capital market, the desire of bringing Chinese SOEs into the international market, and the appropriate conditions in Hong Kong encourage Chinese companies to issue new shares in Hong Kong. Chapter III provides a comparative analysis on underpricing of Chinese and non-Chinese firms in Hong Kong, in order to discover the influence of asymmetric information on overseas listing and the correspondent offering strategies of Chinese companies and their underwriters. They are normally underwritten by highly reputable bankers, and the overwhelming majority of Chinese firms went public via bookbuilding when the market is on an optimal evaluation base. The average price range seems to be relatively conservative for promoting subscription demands. The potential loss can be partially mitigated by a positive price revision and carefully market timing. Chapter IV focuses on information disclosure and earnings forecasting accuracy in IPO prospectuses with their subsequent effects on aftermarket performance, since the accuracy of information becomes important in influencing IPOs offerings and after-market performance. The IPO profit forecasts errors represent a pessimistic bias on average, but it can be a crucial information resource for their investment decisions. The magnitude of forecasting errors is higher for China-related companies than local shares, indicating a higher asymmetric information level. The forecasts are not rational in the sense that managers correctly incorporate all available information, especially historical profits, in their forecasting. Also, the magnitude of forecasting errors can systematically affect the one-year trading performance. Due to the initial overvaluation, firms with higher initial returns actually underperform in the long run. And Chapter V, in order to discover the ultimate meanings and motives of such overseas listing, directly questions why and how the Chinese government takes so many many state-owned enterprises (SOEs) public in the international market. It concludes Chinese SOEs‘ overseas primary listing takes on the formidable tasks of macroeconomic partial privatization, home market protection, and domestic infantile market development. Large and ‗healthy‘ state-owned enterprises (SOEs) within the government‘s supporting industries are more likely to issue their shares on foreign, open, and well-developed stock exchanges when the target market is in good time of pricing and offering, in order to raise more capital, to operate under international standards, to send a positive signal of Chinese economic reform, and to indirectly protect the development of domestic financial market. Consequently, the partial privatization through an overseas primary listing approach is indeed a feasible way to facilitate domestic financial market growth, particularly for countries with a large economy but lack of a well-developed home capital market and a mature trading platform