Management earnings forecast and IPO performance: Evidence of a regime change

Companies making 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 disclosure. This research takes advantage of these two regulatory regimes to study the long-term performance of 303 IPOs issued during January 1993– December 2014over 36 months of secondary-market performance. Findings indicate behavioral change, as positive long term (three-year) return during the mandatory era turned negative in the voluntary period. Comparison of these two regimes may suggest that a mandatory regulatory environment in which firms are forced to provide earnings forecasts delivers better investor returns. On the contrary, the results reveal that a regulation that penalizesing IPO firms for providing what are necessarily highly inaccurate earnings forecasts affects long-term returns because it creates an insecure investment environment. Additional analysis shows that Opportunities for good long-term performance is higher mprove for IPOs under a mandatory earnings regime during a “cold” period with low given ownership and high oversubscription. It is noteworthy that lack of experience and high associated costs prevent a number of IPO firms from providing earnings forecasts under the voluntary regime.