The impact of IFRS adoption on IPO management earnings forecasts in Australia

We find evidence that the adoption of International Financial Reporting Standards (IFRS) improves corporate disclosure. Specifically, we document that forecast errors of the predicted earnings issued during the Initial Public Offering (IPO) have significantly reduced in Australia following the mandatory implementation of IFRS in 2005. The evidence further suggests that managers are more likely to release IPO earnings forecasts towards conservatism in post-IFRS periods. We argue that IFRS enables investors better evaluate IPO firms' performance and demand higher returns from firms which reported inflated and inaccurate earnings forecasts. Our evidence shows that over-optimistic earnings forecasts and larger forecasting errors results in greater underpricing under the IFRS regime. Overall, this study confirms that IFRS is a set of high-quality accounting standards which improve the information environment and accounting quality