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Powerpoint slides of Group 2 - Accuracy of Forecast...

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Accuracy of Forecast Information Disclosed in the IPO Prospectuses of Hong Kong Companies Presented by: Mr. Kenneth Wong no. 04711359G Mr. Kenneth Lau no. 04712830G   Ms. Amy Chan no. 04721482G Ms. Irene Lee no. 04719136G Mr. Kenji Chan no. 04710234G
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Agenda I. Introduction, Background & Objectives II. Literature Review III. Research Methodology and Data Collection IV. Result V. Conclusion & Recommendation Group’s Opinion
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I. Introduction Earning forecasts for Initial Public Offerings (IPO’s) provide: 1. Useful information for the expected future performance 2. In assisting the prospective investors to decide whether to subscribe to the offered shares. Earning forecast is becoming an important decision making tools for investors. However, there is no study has been conducted to evaluate the reliability of these IPO forecasts.
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I. Background Given the capital market expansion increasing number of IPOs in Hong Kong; IPO forecast is voluntary in HK (except for 12 months cash flow forecasts); Forecast disclosed in prospectus carries important signal to public investors; Different studies in Hong Kong market in pricing aspect but no study focus on the forecast accuracy in IPOs;
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I. Background Almost all companies included forecast information in the IPO because……… Investors & sponsors would require the information to evaluate the expected future performance of these companies; It could induce prospective investors to make a positive investment decision; and It could influence the issue price of the offered shares because share price reflect companies’ future earning power.
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To examine the accuracy of IPOs forecasts (profits, EPS & dividend) disclosed by Hong Kong companies; To examine whether these forecasts are under- or over-estimated; To examine its accuracy is influenced by other determinants: company-specific characteristics I. Objectives
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II. Literature Review: Accuracy & Characteristics of IPO Forecasts Company Auditor N/A N/A Insignificant - ve = negative association with forecast accuracy + ve = positive association with forecast accuracy
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II. Literature Review Conclusions: Overall speaking, forecast accuracy differs from country to country. Time horizon of forecast is an important determinant. Company age has some influence on forecast accuracy.
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III. Research Methodology and Data Collection Forecast Error Metrics Forecast error is the difference between the predicted and actual figures for the same time period. Optimistic - Managers over-estimate its forecasts than the actual result in negative forecasts error. Conservative - Managers under-estimate its forecasts than actual result in positive forecasts error.
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III. Hypotheses Two sets of Hypotheses are developed: Bias and accuracy (H1 to H2) The relationship between the forecast error and company specific characteristics (H3 to H7)
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III. Hypotheses Bias and accuracy Not Accurate HK IPO is exhibited  high accuracy H2 The  Degree of  Accuracy Not  optimistic HK Managers are  expected over estimate  its future performance  (optimistic) H1 Bias in  Forecasts Reject Accept Nature
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III. Hypotheses
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This note was uploaded on 07/30/2011 for the course FINANCE 101 taught by Professor Xxx during the Spring '11 term at HKU.

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Powerpoint slides of Group 2 - Accuracy of Forecast...

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