Forecast disclosure by initial public offering firms in a low-litigation environment

• Published in: Journal of accounting and public policy 1996-07, Vol.15 (2), p.111-136
• Main Author: Mak, Y.T.
• Format: Article
• Language: English
• Subjects: Disclosure; Earnings forecasting; Economic behaviour; Financial statements; Firm theory; Hypotheses; Initial public offerings; Public sector; Stock offerings; Studies
• ISSN: 0278-4254; 1873-2070
• DOI: 10.1016/0278-4254(96)00004-X

My study examines the level of disclosure of forecast information by initial public offering firms (IPO firms) in a low-litigation environment. Based on a sample of New Zealand IPO firms, the associations among the level of disclosure of earnings forecast information in their prospectuses and the following independent variables are examined: operating history, variance of aftermarket returns, proportion of inside share ownership, expected short-term earnings, and size of IPO firms. The level of disclosure of earnings forecast information has been measured by the number of individual financial years covered by earnings forecasts. Firms with higher variance of returns tended to disclose more earnings forecast information, while the proportion of shares retained by inside owners was negatively related to the level of disclosure of forecast information. Further, firms with relatively lower expected short-term earnings tended to disclose longer-range forecasts. There is only weak support for the hypothesized negative relationship between number of years of operating history and forecast disclosure. Firm size, which is used as a control variable, was not significantly related to the disclosure of forecast information, after controlling for the other explanatory variables. There was also evidence of differences in forecast disclosure across industries, after controlling for the other explanatory variables.