ABSTRACT

Making investment decisions regarding IPO are extremely challenging. In recent times, individual investors are actively trading in the stock market using the proprietary and non-proprietary information about the firm. Corporate earnings forecasts are an important investment tool for investors. Corporate earnings forecast come from two sources: financial analysts and the firm’s management. As an insider, the management has advantage of possessing more information, and hence provides a more accurate earnings forecast. However, because of the existing relationship of the company with its key investor group, the management may have a tendency to take an optimistic view and overestimate its future earnings. In contrast, the financial analysts are less informed about the company and often rely on management briefings. They have more experiences in the overall market and economics, and are expected to analyze companies with more objectivity. Hence, analysts should provide reliable and more accurate earnings forecast.