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Journal of Finance & Economics Research - Volume 6, Issue 1 2021
By Rumana Haque, Mahmood Osman Imam, Syed Muhtasim Fuad
10.20547/jfer2106101
Keywords: Earnings forecast error, IPO, Long-run performance, Dhaka Stock Exchange.
In this paper, we examine the conjecture that managerial earnings forecast error is associated with long-run price performance of IPOs. We find evidence that firms with high forecasting error performed worst in the three years after going public, while firms with conservative earnings forecast performed better in terms of stock price return. Our results show that the mean absolute forecast error of IPO profit forecasts in Bangladesh is 90\%, implying actual profits deviate 90\% from the forecasted profits in the IPO prospectuses. We find that in the long run, IPOs performed poorly when managers reported their earnings with overoptimisim in their prospectuses than when they reported earnings with more accuracy or conservatism. The results indicate that management earnings projection have significant content relevant to share rice and post-IPO returns.