Earnings Forecasts Disclosed in SEO Prospectuses: Evidence from an Emerging Market

Abstract

This study investigates the credibility of earnings forecasts disclosed by companies listed on the Athens Stock Exchange. The focus of the study is on earnings forecasts disclosed in the prospectus of listed firms that are issuing equity through a rights issue. The results of the study show that the earnings forecasts are overestimated and exhibit low accuracy, a finding suggesting that companies are optimistic when they develop their forecasts. The level of forecast errors can be explained by valuation uncertainty, which is measured by the standard deviation of stock returns prior to the equity offering, and the market-to-book ratio. Furthermore, historical earnings are useful in explaining post issue stock prices.