Associations Between Management Forecast Accuracy and Pricing of IPOs in Athens Stock Exchange

Abstract

This study examines the forecast accuracy of newly listed companies on the Athens Stock Exchange and it continues by investigating earnings forecast with pricing of IPOs. It uses a unique data set of 208 IPOs, which were floated during the period of January 1994 to December 2001 in the Athens Stock Exchange. The findings derived show poor predictability errors regarding individual IPOs forecasts. In order to test companies' specific characteristics and variations in accuracy, we conduct a multivariate regression analysis. The results suggest that investors are, able to anticipate forecast errors at the time of listings. Study on independent determinants that influence forecast accuracy show that three variables- age of the IPOs, ownership by insiders and industry classification - are significant determinants. Pricing of IPOs indicates that firms with negative earnings forecast (pessimistic) are associated with low level of underpricing while optimistic management earning forecast for an IPO can be a signal for high initial returns. Consistent to the results reported in the USA by Ljungqvist and Wilhelm (2003), and Loughran and Ritter (2008), this study highlights that on Greek Stock Exchange IPO underpricing increase in the late 1990s. It claims that such a trend can be estimated by two variables: (i) the optimistic forecast provided by issuers for the IPOs of that period, (ii) the high-growth of the market and the boom of technology firms. The results suggest that accurate forecasts are not rewarded with less money left on the table. Finally, it shows that size of the firm, leverage and economic conditions significantly affect market adjusted initial returns.