The accuracy of management profit forecasts in IPO prospectuses: Evidence from Indonesia

Purpose – The purpose of this paper is to measure the accuracy of management profit forecast in initial public offerings (IPO) prospectuses and investigate the determinants of any observed forecast error in Indonesia. Design/methodology/approach – A sample of 105 Indonesian IPO firms over a ten-year period, 1999-2008, is used in the present study. The accuracy of management profit forecasts, or forecast errors, in IPO prospectuses is calculated, following Lee et al. (2006), over the ten-year sample period. Then, a multivariate model, following the extant literature, is used to identify the determinants of any observed forecast error in Indonesia. Findings – A mean (median) forecast error of 19 percent (9 percent) is reported over the entire sample period. Multivariate analysis shows that, among the explanatory variables used in the present study, forecast horizon and management optimism seem to be the most significant determinants of forecast error in Indonesia. Research limitations/implications – The ord...

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