Management earnings forecasts and IPO performance: evidence of a regime change

Companies undertaking 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. Drawing evidence from IPOs issued during 1993–2015, we produce the first study to investigate the effect of disclosure regime on management earnings forecasts and IPO long-term performance. The findings indicate lower management forecast accuracy and higher long-term returns during the mandatory period, suggesting that the mandatory disclosure requirement causes issuers to systematically bias profit forecasts downwards opting for the safety of accounting conservatism. The mandatory disclosure requirement artificially improves IPO share performance. Overall, our results show that disclosure can actually impede capital market efficiency once it extends from realized performance to compulsory projections about the future