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The accuracy of earnings forecasts in IPO prospectuses on the Kuala Lumpur stock exchange

journal contribution
posted on 2023-06-08, 19:16 authored by Ranko JelicRanko Jelic, Brahim Saadouni, Richard Briston
This paper examines the accuracy of earnings forecasts made by managers of Malaysian initial public offerings (IPOs) during the period 1984-1995. It is a mandatory requirement for Malaysian IPOs to furnish earnings forecasts together with the opinions thereon of the auditors and the lead underwriter in their prospectuses. Their accuracy is measured by forecast errors, absolute forecast errors, squared forecast errors and standardised forecast errors. The results suggest that, on average, managers under-forecast earnings by 33.37%. A comparison with the naive no change model in earnings suggests that 96 Out of 122 companies outperform this model. A number of company specific characteristics (size, age, forecast interval, gearing, proportion of shares retained by owners, auditor reputation and industry) are tested. The results reveal that both the age and industry classification of the company are statistically significant, and that management earnings forecasts are particularly inaccurate where firms experience a decline in earnings.

History

Publication status

  • Published

Journal

Accounting and Business Research

ISSN

0001-4788

Publisher

Taylor & Francis

Issue

1

Volume

29

Page range

57-72

Department affiliated with

  • Business and Management Publications

Full text available

  • No

Peer reviewed?

  • Yes

Legacy Posted Date

2014-12-15

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