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CORPORATE GOVERNANCE AND MANAGEMENT EARNINGS FORECAST QUALITY: EVIDENCE FROM FRENCH IPOS

This study examines whether corporate governance attributes have an effect on the quality of financial disclosure. Specifically, we examine the association between board attributes, ownership retained, auditor quality, and underwriter reputation and management earnings forecast quality measured by management earnings forecast accuracy and bias. Using 117 French IPOs, we find that management earnings forecast quality is significantly associated with some corporate governance attributes. For the board of directors, we find that IPO firms are more likely to issue less accurate and more optimistic earnings forecast when the board size is large. We also find that IPO firms are more likely to issue more accurate and more conservative earnings forecast when the proportion of independent directors on the board is higher. However, CEO duality is not significantly associated with management earnings forecast quality. For ownership retained, we find that IPO firms are more likely to issue more accurate and more conservative earnings forecast when the proportion of shares retained by insiders is higher. With respect to auditor quality, our results show that auditor quality has no significant influence on management earnings forecast quality. Finally, concerning underwriter reputation, our results show that IPO firms are more likely to issue less accurate but more conservative earnings forecast when the IPO firm is underwritten by a more prestigious underwriter. Our results provide evidence that financial disclosure quality is higher in firms with properly structured board of directors. These findings have implications for policy makers and market participants. Potential investors should consider the firm specific as well as corporate governance characteristics as they evaluate management earnings forecast quality.