The Impact of the Board of Directors Characteristics on the Risk of IPO Earnings Forecasts Errors

Abstract

This paper aimed to investigate the effect of corporate governance mechanism on the risk of IPO earnings forecasts errors. It focuses on the relationship between the board of directors characteristics and the risk of earnings forecasts errors. Required data was gathered from 190 Malaysian IPO prospectuses for the year 2002 to 2012, after which data was analyzed using ordinary least squares (OLS) regression. Based on the obtained findings, the earnings forecasts of Malaysian IPO reflected a pessimistic picture with unsatisfactory percentage of accuracy. In particular, the findings of multiple regression analysis of the relationships between the size, independence and CEO duality of the board of directors, and the risk of earnings forecasts errors were negative and insignificant. The study findings have several implications for relevant individuals, including regulators, investors, financial analysts and financial statements users.