The accuracy of Canadian and New Zealand earnings forecasts: A comparison of voluntary versus compulsory disclosures

Pedwell, Kathryn; Warsame, Hussein A.; Neu, Dean

doi:10.1016/1061-9518(94)90018-3

Cited by 40 publications

(50 citation statements)

References 11 publications

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“…Jaggi et al (2006) show that mandatory disclosure of earnings forecasts in Taiwanese IPOs results in more optimistic forecasts than pessimistic forecasts, especially for firms expecting better performance in the forecast year compared to the previous year. Overall, the findings from Malaysia (Jelic et al 1998) and Singapore (Firth et al 1995) suggest that managers tend to be pessimistic forecasters, whereas findings from Canada (Pedwell et al 1994), New Zealand (Mak 1989;Firth and Smith 1992), and Australia (Lee et al 1993;Firth et al 2012) suggest that managers tend to overestimate future earnings in their forecasts. Evidence for Hong Kong is inconclusive.…”

Section: The Literature On Management Earnings Forecasts and Long-runmentioning

confidence: 88%

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

Boubaker

Gounopoulos

Kallias

et al. 2016

Rev Quant Finan Acc

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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.

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Section: The Literature On Management Earnings Forecasts and Long-runmentioning

confidence: 88%

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

Boubaker

Gounopoulos

Kallias

et al. 2016

Rev Quant Finan Acc

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“…About 55% of the sample firms have forecast errors in a range between -10% and +10%, compared to 8% of Australian forecasts (Hartnett, 1993), 45.97% of Malaysian forecasts (Jelic et al, 1998), and 4.9% of Jordanian forecasts (El-Rajabi & Gunasekaran, 2006). About 75% of the sample firms have forecast errors in a range between -20% and +20%, compared to 55% of Canadian forecasts (Pedwell et al, 1994), 19% of New Zealand forecasts (Firth & Smith, 1992), and 7.3% of Jordanian forecasts (El-Rajabi & Gunasekaran, 2006). Moreover, about 0.8% of the sample firms have forecast errors beyond the range of -100% to +100%, compared to 53% of Australian forecasts (Hartnett, 1993) and 39.0% of Jordanian forecasts (El-Rajabi & Gunasekaran,…”

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confidence: 99%

“…This study examines whether the Regulation has achieved its initial 2 IPO earnings forecasts from some Commonwealth countries seem less accurate than Chinese IPO earnings forecasts. For example, the mean absolute forecast error is 289% for the Australian forecasts (Hartnett, 1993), 100% for the New Zealand forecasts (Mak, 1989), and 88% for the Canadian forecasts (Pedwell, Warsame, & Neu, 1994).3 objective. We find that the Regulation has been efficacious in reducing the overestimation of IPO earnings forecasts after it was promulgated on December 26, 1996.…”

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confidence: 99%

The impact of the CSRC Regulation No. 12-1996 on the credibility of Chinese IPO earnings forecasts

Sun

Liu

2009

Global Finance Journal

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No. 12-1996). The Regulation No. 12-1996 (thereafter "the Regulation") imposes penalties on firms whose IPO earnings forecasts are significantly overestimated in their IPO prospectuses.Specifically, the Regulation requires that IPO firms and their auditors must explain and apologize to the public in a CSRC designated newspaper if predicted earnings are overestimated by 10 -20% compared to actual earnings. IPO firms will be penalized if earnings forecasts are overestimated by more than 20% and the overestimation is deemed to be a fraudulent activity. Auditors will also be penalized if they issue an inappropriate audit opinion on a client company's IPO earnings forecasts. The Regulation also prohibits IPO firms from using earnings forecasts as a basis for setting issuance price.Although the Regulation was promulgated to improve the reliability of earnings forecasts in Chinese IPO prospectuses, it remains an empirical question because the legal enforcement infrastructure is weak in China. Moreover, Chinese IPO firms are closely connected with the government, which may provide opportunities for them to override the Regulation. Hence, whether the Regulation can enhance the reliability of earnings forecasts is an empirical question. This study examines whether the Regulation has achieved its initial 2 IPO earnings forecasts from some Commonwealth countries seem less accurate than Chinese IPO earnings forecasts. For example, the mean absolute forecast error is 289% for the Australian forecasts (Hartnett, 1993), 100% for the New Zealand forecasts (Mak, 1989), and 88% for the Canadian forecasts (Pedwell, Warsame, & Neu, 1994).3 objective. We find that the Regulation has been efficacious in reducing the overestimation of IPO earnings forecasts after it was promulgated on December 26, 1996. We also document a significant improvement in earnings forecast accuracy resulting from the promulgation of the Regulation.This study contributes to the literature in the following ways. First, to the best of our knowledge, this is the first study to investigate whether a securities regulation in an emerging market can enhance the reliability of corporate financial disclosure. Since there is rare research into the effects of securities regulations on corporate disclosure, the promulgation of the CSRC Regulation No. 12-1996 provides us an opportunity to enrich this research topic.Second, we document evidence on the efficacy of the CSRC Regulation No. 12-1996. Our findings may provide implications for future regulation promulgation to the CSRC and other securities regulators of emerging markets. Third, this study adds to prior research on the economic determinants of forecast accuracy. Our study suggests some ex ante criteria for evaluating Chinese earnings forecast accuracy.The remainder of the paper is organized as follows. Section 2 introduces institutional background. The third section develops hypotheses. Section 4 discusses research design.

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“…Gross domestic product (GDP) is the base we apply to measure economic conditions. 5 Pedwell et al (1994) and Hartnett and Romcke (2000) suggest that the ability to forecast accurately is influenced by the variability of the economic conditions in effect from the beginning to the end of the forecast period. They specify, somewhat obviously, that the more unstable economic conditions are, the more difficult it is to forecast accurately.…”

Section: Determinants Of Earnings Forecastsmentioning

confidence: 99%

Associations Between Management Forecast Accuracy and Pricing of IPOs in Athens Stock Exchange

Gounopoulos

2011

MFJ

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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 data set 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.

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The accuracy of Canadian and New Zealand earnings forecasts: A comparison of voluntary versus compulsory disclosures

Cited by 40 publications

References 11 publications

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

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

The impact of the CSRC Regulation No. 12-1996 on the credibility of Chinese IPO earnings forecasts

Associations Between Management Forecast Accuracy and Pricing of IPOs in Athens Stock Exchange

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