EFFECT OF MARKET ANALYSTS FORECASTS IN THE OUTCOMES OF 2004-2009 BRAZILIAN IPOs

Abstract

Disclosure of accounting earnings of companies entering in IPO is a key factor in the process of pricing its stocks, since information is not always publicly available. Some studies indicate that IPOs with high and abnormal accruals had faced low returns along the subsequent three years of its IPO. This paper aims to verify whether industry analyst forecasts influence Brazilian IPO’s outcome. The methodology is based on Kao, Wu and Yang (2009) study carried on in China. A sample of 99 IPOs between 2004 and 2009 was sorted out by economic sector. Return on assets (ROA) and abnormal returns (AR) are the main variables used in tests of logistic and linear regressions. Descriptive statistics were used to classify the listed companies by sector, year and size of its assets. The findings show evidence of firms using earnings management to achieve ROA forecasted by market analysts from Central Bank. Regarding to AR regressions, it was found that, for the stock price in the prospectus, AR are positively associated to market performance. In the first after IPO trading day, companies that have distanced their earnings from that forecasted by analysts had a higher AR. Regarding the CAR (cumulative abnormal return) metric, both firm and market performance were significant, even though opposed to each other.

Keywords: Earnings Management. IPOs. ROA. Abnormal Return.