Abstract
Companies making initial public offerings in Greece were obliged to include next year’s profit in the new issue prospectuses, in order to help investors’ value companies and make safe investment decisions, until the regulations changed to voluntary status. This study takes advantage of this regulation alteration and compares the accuracy of earnings forecasts under both mandatory and voluntary disclosure environments. In order to achieve this it uses a large data set of 305 IPOs, which were floated during January 1993 to June 2009 period and employs a number of error metrics to examine forecast accuracy. Findings indicate behavioural change as earnings forecast pessimistic trend during the mandatory era turns to optimistic in the voluntary period. The comparison of those two methods suggests that mandatory earnings forecast regulation may force firms to forecast that have nor the incentives neither the ability to do so. Instead, the results imply that regulations penalizing IPOs for providing high inaccurate forecast appear to be a more appropriate regulatory strategy. Accuracy of earnings increases after the introduction of voluntary disclosure regulation where firms are characterized as mature, with high demand multiple and high retained ownership. In order to test companies’ variations in accuracy and specific characteristics, we conduct multivariate regression analysis. The findings recommend that investors are able to anticipate forecast errors at the time of listings. Investigation on independent variables that influence forecast accuracy show that four determinants – size of the IPO, age of the firm, time lag between the last date of public offering period and first day of trading and sold ownership – are significant determinants.