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Article
Publication date: 19 February 2020

Khawla Hlel, Ines Kahloul and Houssam Bouzgarrou

This paper aims to examine whether International Financial Reporting Standards (IFRS) adoption and corporate governance attributes increase the management earnings

Abstract

Purpose

This paper aims to examine whether International Financial Reporting Standards (IFRS) adoption and corporate governance attributes increase the management earnings forecastsaccuracy disclosed in prospectuses for French Initial Public Offerings (IPOs).

Design/methodology/approach

The analysis is based on cross-sectional regression explaining the absolute forecast errors by using 45 French firms that made IPOs between 2005 and 2016 in two French financial markets: Euronext and Alternext.

Findings

In agreement with the agency theory and the signaling theory, the authors find that the IFRS adoption and the effective corporate governance, proxied by the board characteristics, increase the accuracy of management forecasts. As a result, this latter gives a credible signal in constructing and sustaining shareholders’ trust on the transparency and the reliability of such financial information.

Research limitations/implications

It is plausible that the limited size of the sample represents a limitation of this study. Another limitation is that no other corporate governance attributes such as board meeting frequency, audit committee measures and ownership structure are used.

Practical implications

Shareholders can take benefit from management forecasts accuracy to structure their investment portfolios efficiently to allocate their funds more effectively and mitigate the costs of adverse selection that they have to face. Furthermore, the authors expect the findings to be interesting to IPO firms, as this study highlights the efficiency of larger and independent boards in decreasing managerial discretion, increasing disclosure quality and supervising management. The results could encourage GAAP-adopters countries to move toward IFRS, as this research reinforces the role of IFRS in enhancing the quality of financial disclosure by offering the required information for shareholders.

Originality/value

This study is important because the potential investors should assess management earnings forecasts accuracy before they consider it when evaluating IPO firms. Also, this paper has some implications for the financial market. It is recommended that future investors pay more attention, when assessing the accuracy of management earnings forecasts, to the accounting regulations of the financial reporting along with the corporate governance mechanisms. Moreover, this study could incite French regulators to revise the AFEP-MEDEF code. Under this code, it could insist that larger and independent boards are more effective in performing their governing roles than smaller boards.

Details

Journal of Financial Reporting and Accounting, vol. 18 no. 2
Type: Research Article
ISSN: 1985-2517

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Article
Publication date: 29 July 2020

Faten Ben Ahmed, Bassem Salhi and Anis Jarboui

The purpose of this study is to present an extension to the research area dealing with the Tunisia initial public offering (IPO) associated earnings management forecasts

Abstract

Purpose

The purpose of this study is to present an extension to the research area dealing with the Tunisia initial public offering (IPO) associated earnings management forecasts, by an examination of the corporate governance mechanisms and earnings forecast accuracy relating impacts.

Design/methodology/approach

The authors use a multiple regression technique (FGLS) to estimate the effect of corporate governance structures and audit quality on earnings forecast accuracy. A sample of 33 IPO companies (165 firm-year observations) collected over the period ranging between 2011 and 2015 was applied.

Findings

The finding of this study reveals that the companies displaying a respectable audit committee size have a significant level of earnings forecast accuracy. Similarly, the accuracy level associated with IPO earnings forecasts is positively influenced by the use of the brand-name auditor.

Research limitations/implications

This study is based on a small sample from a single jurisdiction and limited time period. In fact, the findings examine how financial statements are measured and reported and assess additional regulation to protect investors and understand as well as manage earnings forecast accuracy in IPO prospectuses.

Practical implications

The findings of the study provide some implications for regulators, financial analysts, investors and users of financial statements, particularly who are investigating in potentially IPO firms. This study has an implication for market regulators who suggest that a requirement to publish very detailed forecast information would improve market efficiency by reducing the forecast error.

Originality/value

Previous studies on this subject carried out in other countries with a regulatory framework differ from that of Tunisia, which obligatorily obliges the publication of the forecasts in the prospectus of IPO and capital increase. This is one of the most important studies that simultaneously tests the impacts of corporate governance and audit quality on earnings forecast accuracy in an emerging market, and the results of this study may give strength to Tunisian as well as other developing countries.

Details

Journal of Financial Reporting and Accounting, vol. 19 no. 1
Type: Research Article
ISSN: 1985-2517

Keywords

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Article
Publication date: 22 July 2010

Xiaomeng Chen

This paper aims to use Australian analysts' forecast data to compare the relative accuracy of consensus and the most recent forecast in the month before the earnings announcement.

Abstract

Purpose

This paper aims to use Australian analysts' forecast data to compare the relative accuracy of consensus and the most recent forecast in the month before the earnings announcement.

Design/methodology/approach

Cross‐sectional regression is used on a sample of 4,358 company‐year observations of annual analyst forecasts to examine whether the number of analysts following and the timeliness of an individual analyst's forecast is more strongly associated with the superior forecast measure.

Findings

The results suggest that whilst in the late 1980s the most recent forecast was more accurate than the consensus, since the early 1990s the accuracy of the consensus forecast has outperformed the most recent forecast in 15 out of 17 years, and the differences are significant for nine out of 15 years. The forecasting superiority of the consensus can be attributed to the aggregating value of the consensus outweighing the small timing advantage of the most recent forecast over the short forecast horizon examined in this paper.

Research limitations/implications

Given the consistent use of analysts' forecasts as proxies for expected earnings in Australian research, this paper provides insights to what extent the expected level of forecast accuracy is realised and the reasons for the greater accuracy in the superior forecast measure.

Practical implications

The findings confirm market practitioners' views that the consensus forecast is a better measure of the market's earnings expectations.

Originality/value

This paper provides direct evidence of the accuracy of alternative forecast measures and the importance of diversifying idiosyncratic individual error across analyst forecasts.

Details

Accounting Research Journal, vol. 23 no. 1
Type: Research Article
ISSN: 1030-9616

Keywords

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Book part
Publication date: 20 January 2021

Rajib Hasan and Abdullah Shahid

We highlight two mechanisms of limited attention for expert information intermediaries, i.e., analysts, and the effects of such limited attention on the market price…

Abstract

We highlight two mechanisms of limited attention for expert information intermediaries, i.e., analysts, and the effects of such limited attention on the market price discovery process. We approach analysts' limited attention from the perspective of day-to-day arrival of information and processing of tasks. We examine the attention-limiting role of competing tasks (number of earnings announcements and forecasts for portfolio firms) and distracting events (number of earnings announcements for non-portfolio firms) in analysts' forecast accuracy and the effects of such, on the subsequent price discovery process. Our results show that competing tasks worsen analysts' forecast accuracy, and competing task induced limited attention delays the market price adjustment process. On the other hand, distracting events can improve analysts' forecast accuracy and accelerate market price adjustments when such events relate to analysts' portfolio firms through industry memberships.

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Article
Publication date: 14 September 2018

Mohammed Abdullah Ammer and Abdulaziz Mohammed Alsahlawi

Islam stresses on the practice of transparency and sufficient disclosure particularly when it concerns the ethical identity of Islamic institutions. This is to make sure…

Abstract

Purpose

Islam stresses on the practice of transparency and sufficient disclosure particularly when it concerns the ethical identity of Islamic institutions. This is to make sure that the activities conducted in business adhere to Shari’ah principles. The purpose of this paper is to examine the impact of Shari’ah-compliant status on the accuracy of initial public offering (IPO) earnings forecasts and to investigate the effect of the existence of Muslim directors on IPO companies’ board of directors on the accuracy of earnings forecasts.

Design/methodology/approach

This study makes use of absolute forecast error as a proxy for earnings forecast accuracy. As obtained from the list of Shari’ah-compliant securities established by the Shari’ah Advisory Council of the Malaysian Securities Commission, the study sample comprised 190 Shari’ah-compliant and non-compliant IPOs. The collected data were analyzed through univariate analysis and ordinary least squares regression.

Findings

The initial findings show that during the study period, the earnings forecasts of Malaysian IPOs are accurate to some level, although such level is still unsatisfactory. The findings also showed that Shari’ah-compliant status and Muslim directorship do not positively affect the accuracy of IPO earnings forecasts.

Practical implications

The findings of the study provide some implications for regulators, financial analysts, investors and users of financial statements, particularly those desirous of investing in Islamic capital market.

Originality/value

The present study provides a new and far-reaching contribution into the debate about the earnings forecasts disclosure in the context of Islamic ethical perspective. In addition, this study is considered as the first study to extend IPO literature by examining the impact of Shari’ah-compliant status and Muslim directorship on the accuracy of management earnings forecasts disclosed in the IPO prospectus.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 12 no. 1
Type: Research Article
ISSN: 1753-8394

Keywords

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Article
Publication date: 18 May 2010

Nurwati A. Ahmad‐Zaluki and Wan Nordin Wan‐Hussin

This paper aims to extend the research on the Malaysian initial public offering (IPO) management earnings forecasts by examining the impact of corporate governance…

Abstract

Purpose

This paper aims to extend the research on the Malaysian initial public offering (IPO) management earnings forecasts by examining the impact of corporate governance mechanisms and earnings forecasts accuracy. It seeks to investigate whether effective corporate governance is a credible signal of improving the quality of financial information.

Design/methodology/approach

A sample of 235 IPO companies that went public during the period 1999‐2006 was used. Absolute forecast error was used to proxy for earnings forecast accuracy and to represent financial disclosure quality.

Findings

Companies with a higher percentage of non‐executive directors in the audit committees and larger audit committee size exhibit greater forecast accuracy. The accuracy of IPO earnings forecast is also positively influenced by the use of brand‐name auditor.

Practical implications

The results suggest that effective corporate governance is a credible signal of improving the quality of financial information. The role of audit committee as financial monitors as suggested by the agency theory supports this paper.

Originality/value

The results are consistent with the belief that effective corporate governance is associated with higher financial disclosure quality. The results also support the decisions made by Malaysian regulators such as the Securities Commission to enhance the quality of financial disclosure by revising the Malaysian Code on Corporate Governance to encourage public companies to implement good governance practices such as audit committee independence.

Details

Asian Review of Accounting, vol. 18 no. 1
Type: Research Article
ISSN: 1321-7348

Keywords

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Article
Publication date: 11 November 2019

Imran Haider, Nigar Sultana, Harjinder Singh and Yeut Hong Tham

The purpose of this paper is to assess whether there is an association between CEO age and analysts forecast properties (particularly forecast accuracy and bias/optimism)…

Abstract

Purpose

The purpose of this paper is to assess whether there is an association between CEO age and analysts forecast properties (particularly forecast accuracy and bias/optimism). CEOs, having the central role in managing firms, can significantly influence the financial and non-financial decisions in an organisation. Furthermore, having been identified as key culprits in past major accounting scandals, it is also important to identify the CEO characteristics that affect financial reporting decisions.

Design/methodology/approach

This study adopts the upper echelon theory on the relationship between CEO age and analysts forecast properties. The authors use a sample of 2,730 Australian firm-year observations for the period 2004–2013 drawn from IBES, Connect 4 and SIRCA databases.

Findings

The authors find that analyst forecast accuracy increases and bias (optimism) reduces with the CEO age. The authors conclude that earnings and related information provided to analysts improves with the CEO age, which increases the forecast accuracy and reduces bias (optimism). Additional results suggest that the positive (negative) effect of CEO age on forecast accuracy (bias) remains until the CEOs reach the age of their retirement age (65 years). The results remain consistent with a number of sensitivity tests and provide implication for stakeholders such as firms, analysts, auditors, financial statements users and regulators.

Practical implications

The authors demonstrate that the relationship between CEO age and analyst forecast properties is not linear but is, in fact, curvilinear substantiating concerns that CEOs that are much younger or much older do not help increase the quality of the information environment. Consequently, firms hiring CEOs in the right age bracket also benefit by having higher-quality information environment leading possibly to reduce costs such as those relating to debt and/or equity ultimately increasing firm value.

Originality/value

Empirical studies on the association between CEO age and analysts earnings properties in Australia are scarce and this paper contributes to the determinants of the analysts forecast accuracy and bias (optimism) and the CEO age literature.

Details

Asian Review of Accounting, vol. 28 no. 1
Type: Research Article
ISSN: 1321-7348

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Article
Publication date: 4 November 2014

Yu-Ho Chi and David A. Ziebart

– The purpose of this paper is to examine the impact of management’s choice of forecast precision on the subsequent dispersion and accuracy of analysts’ earnings forecasts.

Abstract

Purpose

The purpose of this paper is to examine the impact of management’s choice of forecast precision on the subsequent dispersion and accuracy of analysts’ earnings forecasts.

Design/methodology/approach

Using a sample of 3,584 yearly management earnings per share (EPS) forecasts and 10,287 quarterly management EPS forecasts made during the period of 2002-2007 and collected from the First Call database, the authors controlled for factors previously found to impact analysts’ forecast accuracy and dispersion and investigate the link between management forecast precision and attributes of the analysts’ forecasts.

Findings

Results provide empirical evidence that managements’ disclosure precision has a statistically significant impact on both the dispersion and the accuracy of subsequent analysts’ forecasts. It was found that the dispersion in analysts’ forecasts is negatively related to the management forecast precision. In other words, a precise management forecast is associated with a smaller dispersion in the subsequent analysts’ forecasts. Evidence consistent with accuracy in subsequent analysts’ forecasts being positively associated with the precision in the management forecast was also found. When the present analysis focuses on range forecasts provided by management, it was found that lower precision (a larger range) is associated with a larger dispersion among analysts and larger forecast errors.

Practical implications

Evidence suggests a consistency in inferences across both annual and quarterly earnings forecasts by management. Accordingly, recent calls to eliminate earnings guidance through short-term quarterly management forecasts may have failed to consider the linkage between the attributes (precision) of those forecasts and the dispersion and accuracy in subsequent analysts’ forecasts.

Originality/value

This study contributes to the literature on both management earnings forecasts and analysts’ earnings forecasts. The results assist in policy deliberations related to calls to eliminate short-term management earnings guidance.

Details

Review of Accounting and Finance, vol. 13 no. 4
Type: Research Article
ISSN: 1475-7702

Keywords

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Article
Publication date: 26 July 2021

Khairul Anuar Kamarudin, Wan Adibah Wan Ismail, Iman Harymawan and Rohami Shafie

This study examined the effect of different types of politically connected (PCON) Malaysian firms on analysts' forecast accuracy and dispersion.

Abstract

Purpose

This study examined the effect of different types of politically connected (PCON) Malaysian firms on analysts' forecast accuracy and dispersion.

Design/methodology/approach

The study identified different types of PCON firms according to Wong and Hooy's (2018) classification, which divided political connections into government-linked companies (GLCs), boards of directors, business owners and family members of government leaders. The sample covered the period 2007–2016, for which earnings forecast data were obtained from the Institutional Brokers' Estimate System (IBES) database and financial data were extracted from Thomson Reuters Fundamentals. We deleted any market consensus estimates made by less than three analysts and/or firms with less than three years of analyst forecast information to control for the impact of individual analysts' personal attributes.

Findings

The study found that PCON firms were associated with lower analyst forecast accuracy and higher forecast dispersion. The effect was more salient in GLCs than in other PCON firms, either through families, business ties or boards of directors. Further analyses showed that PCON firms—in particular GLCs—were associated with more aggressive reporting of earnings and poorer quality of accruals, hence providing inadequate information for analysts to produce accurate and less dispersed earnings forecasts. The results were robust even after addressing endogeneity issues.

Research limitations/implications

This study found new evidence of the impact of different types of PCON firms in exacerbating information asymmetry, which was not addressed in prior studies.

Practical implications

This study has a significant practical implication for investors that they should be mindful of high information asymmetry in politically connected firms, particularly government-linked companies.

Originality/value

This is the first study to provide evidence of the impact of different types of PCON firms on analysts' earnings forecasts.

Details

Journal of Applied Accounting Research, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0967-5426

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Article
Publication date: 7 August 2017

Mohammed Abdullah Ammer and Nurwati A. Ahmad-Zaluki

Presently, one of the major governance issues faced by management and shareholders of organizations is the gender composition of the boards of directors and audit…

Abstract

Purpose

Presently, one of the major governance issues faced by management and shareholders of organizations is the gender composition of the boards of directors and audit committees. This study aims to examine the impact of gender diversity in audit committees on the accuracy of management earnings forecasts disclosure in initial public offering (IPO) prospectuses.

Design/methodology/approach

The study sample comprises 190 Malaysian companies issuing IPOs that transformed into public companies during the period 2002-2012. Earnings forecasts accuracy (quality) is proxied by absolute forecast error and the study model is developed based on the frameworks of the signalling theory, the agency theory and the resource-dependence theory.

Findings

The study proposes that female directors introduce a set of specific features in the boardroom that serve to improve investor protection and efficient monitoring of management. However, findings reveal an insignificantly positive relationship between gender diversity in audit committees and absolute forecast error, which shows that more female directors in audit committees could translate into more errors and less accuracy in earnings forecasts.

Practical implications

Considering the recent regulatory developments that encourage the number of women on the board of directors, the findings obtained have significant implications for policymakers. The study findings can also be invaluable to investors, investment analysts, market players and researchers.

Originality/value

The composition of the board of directors and audit committees in terms of gender plays a significant role in the promotion of effective corporate governance practices. This study is one of the pioneering studies that examines the advantages of gender diversity in the board of directors. It is also the first study to extend IPO literature by investigating the role of gender diversity in audit committees in the enhancement of accurate management earnings forecasts included in the IPO prospectuses.

Details

Gender in Management: An International Journal, vol. 32 no. 6
Type: Research Article
ISSN: 1754-2413

Keywords

1 – 10 of over 2000