The Value Relevance of Management Expectation: A Case Study of UK IPOs

28 Pages Posted: 12 Feb 2010

See all articles by Yanthi Hutagaol

Yanthi Hutagaol

Binus Business School

Jo Danbolt

University of Edinburgh Business School

Date Written: February 11, 2010

Abstract

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

Hutagaol, Yanthi and Danbolt, Jo, The Value Relevance of Management Expectation: A Case Study of UK IPOs (February 11, 2010). Available at SSRN: https://ssrn.com/abstract=1551662 or http://dx.doi.org/10.2139/ssrn.1551662

Yanthi Hutagaol (Contact Author)

Binus Business School ( email )

Jl Hang Lekir I no.6
Kebayoran Baru
Jakarta, 12120
Indonesia

Jo Danbolt

University of Edinburgh Business School ( email )

University of Edinburgh
29 Buccleuch Place
Edinburgh, Scotland EH8 9JS
UNITED KINGDOM

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