Review of Quantitative Finance and Accounting

, Volume 26, Issue 3, pp 275–299

Earnings forecast disclosure regulation and earnings management: evidence from Taiwan IPO firms


    • Faculty of Management School of BusinessRutgers University
  • Chen-lung Chin
    • Department of AccountingNational Cheng Chi University
  • Hsiou-wei William Lin
    • Department and Graduate Institute of International BusinessNational Taiwan University
  • Picheng Lee
    • Department of Accounting, Lubin School of BusinessPace University

DOI: 10.1007/s11156-006-7434-2

Cite this article as:
Jaggi, B., Chin, C., William Lin, H. et al. Rev Quant Finan Acc (2006) 26: 275. doi:10.1007/s11156-006-7434-2


This study examines whether the Taiwanese regulation requiring disclosure of earnings forecasts in the IPOs resulted in disclosure of more optimistic earnings forecasts and whether the forecast error was reduced more by manipulating the reported earnings rather than revising the earnings forecasts to meet the forecast error threshold. The study is based on 759 forecasts issued by the Taiwanese IPO firms from 1994 to 2001, i.e. 8-year period after the regulation was modified to increase the forecast error threshold to 20%.

The findings show that the disclosure regulation resulted in more optimistic forecasts than conservative forecasts, especially for firms expecting better performance in the forecast year compared to the previous year. Firms disclosing optimistic earnings forecasts engaged more in manipulation of reported earnings than revision of forecasts to meet the forecast error threshold. These findings thus suggest that the disclosure regulation resulted in earnings manipulation, which reduced the quality of reported earnings.


Earnings managementDisclosure regulationDiscretionary accrualsMandatory earnings forecastsForecast error threshold

Copyright information

© Springer Science + Business Media, Inc. 2006