THE ACCURACY OF EARNINGS FORECAST AND POST-IPO EARNINGS MANAGEMENT
Dezie L. Warganegara
School of Accounting & Finance BINUS Business School – BINUS University
Jl. Hang Lekir I No. 6, Jakarta, 10270.
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Prior studies showed that before IPO, many companies conducted earnings management in order to attract potential investors through impressive earnings figures. This study aimed to investigate the tendency of earnings management practice post – IPO. This practice of earnings management was motivated to preserve managers’ reputation in achieving their earnings forecasts. Using a total of 165 IPOs in IDX during year 2000-2010, this study employed descriptive analyses to identify the earnings management differences within the sample. A cross-section analysis was conducted to test the difference of earnings management indicator among the forecasters. Then, controlling for audit quality, ownership, firm size, and firm leverage, a regression analysis was performed to test the impact of earnings forecasts accuracy on the earnings management. The result of this research showed that there was an indication that the forecasters conducted more earnings management than the non-forecasters. The study found that forecast accuracy was significantly related to managers’ behavior to manage post-IPO earnings. Further analysis showed that optimistic forecasters tended to engage more in more earning management than conservative forecasters. The cross section analysis confirmed that optimistic earnings forecast strengthened the relationship of forecast accuracy and post-IPO earnings management, while high audit quality failed to weaken it.
Key words: earnings forecast, earnings management, initial public offering