The impact of IFRS adoption on IPO management earnings forecasts in Australia

Georgios Georgakopoulos; Dimitrios Gounopoulos; Chen Huang; Victoria Patsika

doi:10.1016/j.intaccaudtax.2022.100490

The impact of IFRS adoption on IPO management earnings forecasts in Australia

Georgios Georgakopoulos, Dimitrios Gounopoulos, Chen Huang, Victoria Patsika

Research output: Contribution to journal › Article › peer-review

7 Citations (SciVal)

Abstract

This study investigates the accuracy of management earnings forecasts under International Financial Reporting Standards (IFRS) in the context of an initial public offering (IPO). We observe a decline in management forecast errors (FEs) in Australia following the mandatory implementation of IFRS in 2005. Further evidence suggests that IPO management earnings forecasts become more conservative after IFRS was required. We argue that IFRS enables investors to better evaluate IPO firms’ performance and demand higher returns from firms that report inflated and inaccurate earnings forecasts. We also show that over-optimistic earnings forecasts and larger forecasting errors result in greater underpricing under the IFRS regime. Overall, this study suggests that IFRS, as a set of high-quality accounting standards, improves corporate disclosure quality and the information environment.

Original language	English
Article number	100490
Journal	Journal of International Accounting, Auditing and Taxation
Volume	48
Early online date	25 Jul 2022
DOIs	https://doi.org/10.1016/j.intaccaudtax.2022.100490
Publication status	Published - 30 Sept 2022

Bibliographical note

Funding Information:
We would like to thank Christopher Nobes, Chris Adcock, Jeffrey Callen, Alfred Jagenhofer, Alan Jagolinzer, Biky Jaggi, Ranko Jelic, Irene Karamanou, Kevin Keasey, Arthur Kraft, Anna Merika, Laksmanan Shivakumar, Stephen Taylor, Nikos Vafeas, seminar participants at the University of Glasgow, the Newcastle University, the University of Sussex as well as participants at the European Accounting Association Conference (particularly our discussant, James Guthrie) and the participants of the European Financial Management Association Conference (particularly our discussant, Florinda Silva) for useful comments and suggestions. We dedicate this study to the memory of the eminent scholar Professor Michael Firth who has driven this study with advice and spirit.

Funding

We would like to thank Christopher Nobes, Chris Adcock, Jeffrey Callen, Alfred Jagenhofer, Alan Jagolinzer, Biky Jaggi, Ranko Jelic, Irene Karamanou, Kevin Keasey, Arthur Kraft, Anna Merika, Laksmanan Shivakumar, Stephen Taylor, Nikos Vafeas, seminar participants at the University of Glasgow, the Newcastle University, the University of Sussex as well as participants at the European Accounting Association Conference (particularly our discussant, James Guthrie) and the participants of the European Financial Management Association Conference (particularly our discussant, Florinda Silva) for useful comments and suggestions. We dedicate this study to the memory of the eminent scholar Professor Michael Firth who has driven this study with advice and spirit.

Keywords

Corporate disclosure
IFRS
Information environment
IPOs
Management earnings forecast accuracy

ASJC Scopus subject areas

Accounting
Finance

Access to Document

10.1016/j.intaccaudtax.2022.100490

https://orca.cardiff.ac.uk/id/eprint/151494/Licence: CC BY-NC-ND

Cite this

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title = "The impact of IFRS adoption on IPO management earnings forecasts in Australia",

abstract = "This study investigates the accuracy of management earnings forecasts under International Financial Reporting Standards (IFRS) in the context of an initial public offering (IPO). We observe a decline in management forecast errors (FEs) in Australia following the mandatory implementation of IFRS in 2005. Further evidence suggests that IPO management earnings forecasts become more conservative after IFRS was required. We argue that IFRS enables investors to better evaluate IPO firms{\textquoteright} performance and demand higher returns from firms that report inflated and inaccurate earnings forecasts. We also show that over-optimistic earnings forecasts and larger forecasting errors result in greater underpricing under the IFRS regime. Overall, this study suggests that IFRS, as a set of high-quality accounting standards, improves corporate disclosure quality and the information environment.",

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author = "Georgios Georgakopoulos and Dimitrios Gounopoulos and Chen Huang and Victoria Patsika",

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AU - Patsika, Victoria

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N2 - This study investigates the accuracy of management earnings forecasts under International Financial Reporting Standards (IFRS) in the context of an initial public offering (IPO). We observe a decline in management forecast errors (FEs) in Australia following the mandatory implementation of IFRS in 2005. Further evidence suggests that IPO management earnings forecasts become more conservative after IFRS was required. We argue that IFRS enables investors to better evaluate IPO firms’ performance and demand higher returns from firms that report inflated and inaccurate earnings forecasts. We also show that over-optimistic earnings forecasts and larger forecasting errors result in greater underpricing under the IFRS regime. Overall, this study suggests that IFRS, as a set of high-quality accounting standards, improves corporate disclosure quality and the information environment.

AB - This study investigates the accuracy of management earnings forecasts under International Financial Reporting Standards (IFRS) in the context of an initial public offering (IPO). We observe a decline in management forecast errors (FEs) in Australia following the mandatory implementation of IFRS in 2005. Further evidence suggests that IPO management earnings forecasts become more conservative after IFRS was required. We argue that IFRS enables investors to better evaluate IPO firms’ performance and demand higher returns from firms that report inflated and inaccurate earnings forecasts. We also show that over-optimistic earnings forecasts and larger forecasting errors result in greater underpricing under the IFRS regime. Overall, this study suggests that IFRS, as a set of high-quality accounting standards, improves corporate disclosure quality and the information environment.

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KW - IFRS

KW - Information environment

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KW - Management earnings forecast accuracy

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The impact of IFRS adoption on IPO management earnings forecasts in Australia

Abstract

Bibliographical note

Funding

Keywords

ASJC Scopus subject areas

Access to Document

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