Mandatory Management Forecasts and Post-SEO Performance: Evidence from Japan

초록

This study examines the determinants and consequences of seasoned equity offering (SEO) issuers’ decisions to bias their management earnings forecasts before SEOs in Japan, where management forecasts are mandatory. We identify firm characteristics associated with incentives to inflate management forecasts before SEOs: (i) the use of fund to pay debt, (ii) the economic significance of SEO proceeds, and (iii) financial distress. We also find that the effect of those firm characteristics on forecast error can be reduced by strong bank relationships. In addition, we demonstrate that optimism in management forecasts prior to SEOs is associated with post-SEO underperformance.

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