Earning forecasting in the initial public offering and its consequences

Subject Areas : Financial Economics

Anahita Sadat Daryabari ¹ , ایمان داداشی ^{2 *} , kaveh azinfar ³

1 - PhD Student in Accounting, Department of Accounting, Babol Branch, Islamic Azad University, Babol, Iran.
2 - گروه حسابداری، دانشگاه قم، قم، ایران (نویسنده مسئول
3 - Department of Accounting, Babol branch, Islamic Azad University, Babol , Iran.

Received: 2023-10-28 Published : 2025-07-02

Keywords: Earnings Forecasts, Initial Public Offerings, Long-run Performance, Adjusted return, Fama and French model.,

Abstract :

The expected profit is among the information influencing the decision to buy shares during the initial public offering. On the other hand، the disclosure of the profit forecast can put pressure on companies to meet the target، and failure to do so will have severe consequences for subsequent capital raising. The purpose of this research is to investigate the impact of profit forecast at the time of initial public offering on the long-term performance of companies.In order to measure the long-term performance of companies، two methods of the adjusted return of the company's stock relative to the market for 3 years after the initial offering and the three factor model of Fama and French have been used. The data required for the current research has been extracted from 107 companies whose shares have been offered to the public in the period of 2003-2018.Findings indicate that there is no significant effect of profit forecast at the time of initial public offering on the long-term performance of companies (in both methods). The results suggest that earnings forecasts at the time of the initial public offering do not contain information content and the market does not respond to it. And considering the difference between the realized profit and the projected profit of companies with initial public offering، it seems that due to the lack of legal punishment and lack of attention Due to the consequences and costs of incorrect forecasting، management does not see itself under pressure to achieve the predicted earning.