The Value Relevance of Management Expectation: A Case Study of UK IPOs
28 Pages Posted: 12 Feb 2010
Date Written: February 11, 2010
Using the accounting valuation model, this study investigates the value relevance of management expectation, which is reflected in forecasted earnings and pro-forma book value of equity on IPO prices in the UK over the 1987-1997 period.
The empirical results show robust relationships between the forecasted accounting numbers and the IPO valuations. Consistent to prior studies, forecasted earnings and pro-forma book value of equity are found to be positively related to the IPO offer prices as well as the IPO initial market prices. The robustness check also shows that future accounting numbers are superior to historic accounting number. This confirms that the management expectation has more information content than historic accounting numbers.
Keywords: Management expectation, Forecasted accounting, Accounting valuation model, IPO, UK
JEL Classification: D82, G30
Suggested Citation: Suggested Citation