The Accuracy of Profits Forecasts in Initial Public Offering Prospectuses

The paper examines the accuracy of profits forecasts contained in prospectuses of companies newly listing on the New Zealand Stock Exchange. Accuracy is measured by forecast errors, absolute forecast errors and squared forecast errors. The level of forecast accuracy appears to be poor in comparison to studies conducted elsewhere. An attempt to model the errors as a function of firm specific characteristics and of Big Eight/non-Big Eight auditor choice proved to be of little value. The forecasting errors were found to be unrelated to the stock price premium upon listing.