Diversity on management and supervisory board and accuracy of management earnings forecasts in IPO prospectuses

Tomasz Sosnowski, Anna Wawryszuk-Misztal

DOI: http://dx.doi.org/10.12775/EiP.2019.024

Abstract


Motivation: Although the issue of accuracy and bias of earnings forecasts revealed in the IPO prospectuses has attracted attention of many researchers, the literature on the relationship between board characteristics and the quality of such financial projections is still very limited, especially for a two-tier board structure consisting of the management and the supervisory board. The policy of diversity on the boardroom is promoted in many countries and composition of the management and supervisory boards is expected to be comprehensive and diverse, among others, in terms of gender, education, age and professional experience of the members.

Aim: The main objective of this study is to analyse the relationship between the accuracy of the earnings forecast disclosed in the IPO prospectus and the diversity of company’s corporate governance institutions. More specifically, we ask a question whether the extent of diversity in the board system features may have an impact on the accuracy of such forward-looking financial information.

Results: Using a sample of 104 IPOs from the Warsaw Stock Exchange, we find that certain characteristics of the management and supervisory board enhance the usefulness of forward-looking financial information from a IPO prospectus, as some of boards characteristics are important for the evaluation of the earnings forecasts credibility at the time of IPO. For example, in accordance with our expectations, the age diversity results in more accurate forecasts. This evidence may be seen as an argument

Keywords


corporate governance; IPO forecast accuracy; management and supervisory board diversity; forecast error

Full Text:

PDF

References


Abdullah, S.N., & Ku Ismail, K.N.I. (2013). Gender, ethnic and age diversity of the boards of large malaysian firms and performance. Jurnal Pengurusan, 38. doi:10.17576/pengurusan-2013-38-03.

Ahmad-Zaluki, N.A., & Wan-Hussin, W.N. (2010). Corporate governance and earnings forecasts accuracy. Asian Review of Accounting, 18(1). doi:10.1108/13217341011046006.

Ahmed, A., Monem R.M., Delaney, D., & Ng, C. (2017). Gender diversity in corporate boards and continuous disclosure: Evidence from Australia. Journal of Contemporary Accounting & Economics, 13(2). doi:10.1016/j.jcae.2017.05.004.

Al-Shaer, H., & Zaman, M. (2016). Board gender diversity and sustainability reporting quality. Journal of Contemporary Accounting & Economics, 12(3). doi:10.1016/j.jcae.2016.09.001.

Ammer, M.A., & Ahmad-Zaluki, N.A. (2014). Absolute forecast errors of earnings in malaysian IPO prospectuses: the impact of ethnic diversity. Jurnal Teknologi, 68(3). doi:10.11113/jt.v68.2954.

Ammer, M.A., & Ahmad-Zaluki, N.A. (2017). The role of the gender diversity of audit committees in modelling the quality of management earnings forecasts of initial public offers in Malaysia. Gender in Management: An International Journal, 32(6). doi:10.1108/GM-09-2016-0157.

Backes-Gellner, U., & Veen, S. (2013). Positive effects of ageing and age diversity in innovative companies: large scale empirical evidence on company productivity. Human Resource Management Journal, 23(3). doi:10.1111/1748-8583.12011.

Bédard, J., Coulombe, D., & Courteau, L. (2008). Audit committee, underpricing of IPOs, and accuracy of management earnings forecasts. Corporate Governance: An International Review, 16(6). doi:10.1111/j.1467-8683.2008.00708.x.

Bennouri, M., Chtioui, T., Nagati, H,. & Nekhili, M. (2018). Female board directorship and firm performance: what really matters? Journal of Banking and Finance, 88. doi:10.1016/j.jbankfin.2017.12.010.

Bertoni, F., Meoli, M., & Vismara, S. (2014). Board independence, ownership structure and the valuation of IPOs in continental Europe. Corporate Governance: An International Review, 22(2). doi:10.1111/corg.12051.

Bohdanowicz, L. (2011). Kobiety w radach nadzorczych i zarządach spółek: polskie i światowe tendencje oraz wyzwania. Organizacja i Kierowanie, 3(146).

Bryant, P., & Davis, C. (2012). Regulated change effects on boards of directors: a look at agency theory and resource dependency theory. Academy of Strategic Management Journal, 11(2).

Camelo, C., Fernández-Alles, M., & Hernández, A.B. (2010). Strategic consensus, top management teams, and innovation performance. International Journal of Manpower, 31(6). doi:10.1108/01437721011073373.

Carter, D.A., D’Souza, F., Simkins, B.J., & Simpson, W.G. (2010). The gender and ethnic diversity of US boards and board committees and firm financial performance. Corporate Governance: An International Review, 18(5). doi:10.1111/j.1467-8683.2010.00809.x.

Chong, B.S, & Ho, K.W. (2007). Lockup and voluntary earnings forecast disclosure in IPOs. Financial Management, 36(3). doi:10.1111/j.1755-053X.2007.tb00081.x.

Eulerich, M, Velte, P., & Van Uum, C. (2014). The impact of management board diversity on corporate performance: an empirical analysis for the German two-tier system. Problems and Perspectives in Management, 12(1).

Filbeck, G., Foster, B., Preece, D., & Zhao, X. (2017). Does diversity improve profits and shareholder returns? Evidence from top rated companies for diversity by DiversityInc. Advances in Accounting, 37. doi:10.1016/j.adiac.2017.02.001.

Hassan, R., Marimuthu, M., & Johl, S.K. (2015). Diversity, corporate governance and implication on firm financial performance. Global Business and Management Research: An International Journal, 7(2).

Herring, C. (2009). Does diversity pay? Race, gender, and the business case for diversity. American Sociological Review, 74(2). doi:10.1177/000312240907400203.

Hillman, A.J., & Dalziel, T. (2003). Board of directors and firm performance: integrating agency and resource dependence perspectives. Academy of Management Review, 28(3). doi:10.2307/30040728.

Houle, C.O. (1990). Who should be on your board? Nonprofit World, 8(1).

Huang, H.H., Chan, M.L., Chang, C.H., &Wong, J.L. (2012). Is corporate governance related to the conservatism in management earnings forecasts? Emerging Markets Finance & Trade, 48(S2), doi:10.2753/REE1540-496X48S206.

Huang, J., & Kisgen, D. (2013). Gender and corporate finance: are male executives overconfident relative to female executives? Journal of Financial Economics, 108(3). doi:10.1016/j.jfineco.2012.12.005.

Jhunjhunwala, S., & Mishra, R.K. (2012). Board diversity and corporate performance: the Indian evidence. The IUP Journal of Corporate Governance, 11(3).

Jog, V.J., & McConomy, R.J. (2003). Voluntary disclosure of management earnings forecasts in IPO prospectuses. Journal Business Finance & Accounting, 30(1–2). doi:10.1111/1468-5957.00486.

Kang, H., Cheng, M., & Gray, S.J. (2007). Corporate governance and board composition: diversity and independence of Australian boards. Corporate Governance: An International Review, 15(2). doi:10.1111/j.1467-8683.2007.00554.x.

Kilic, M., Kuzey, C., (2018). Determinants of forward-looking disclosures in integrated reporting. Managerial Auditing Journal, 33(1). doi:10.1108/MAJ-12-2016-1498.

Lonkani, R., & Firth, M. (2005). The accuracy of IPO profit forecasts in Thailand and their relationships with stock market valuation. Accounting and Business Research, 35(3). doi:10.1080/00014788.2005.9729991.

Mahadeo, J.D., Soobaroyen, T., & Oogarah-Hanuman, V. (2012). Board composition and financial performance: uncovering the effects of diversity in an emerging economy. Journal of Business Ethics, 105(3). doi:10.1007/s10551-011-0973-z.

Mishra, R.K., & Jhunjhunwala, S. (2013). Diversity and the effective corporate board. Oxford: Elsevier. doi:10.1016/c2012-0-06237-0.

Pfeffer, J. (1972). Size and composition of corporate boards of directors: the organization and its environment. Administrative Science Quarterly, 17(2). doi:10.2307/2393956.

Rozporządzenie Ministra Finansów z dnia 19 października 2005 w sprawie informacji bieżących i okresowych przekazywanych przez emitentów papierów wartościowych [Regulation of the Minister of Finance of 19 October 2005 on current and periodic information provided by issuers of securities] (Dz.U. 2005 nr 209 poz. 1744) (Poland).

Solanas, A., Selvan, R.M., Navarro, J., & Leiva, D. (2012). Some common indexes of group diversity: upper boundaries. Psychological Reports, 111(3). doi:10.2466/01.09.21.pr0.111.6.777-796.

Talavera, O., Yin, S. & Zhang, M. (2018). Age diversity, directors’ personal values, and bank performance. International Review of Financial Analysis, 55. doi:10.1016/j.irfa.2017.10.007.

Taljaard, C.CH; Ward, M. JD, & Muller, C.J. (2015). Board diversity and financial performance: a graphical time-series approach. South African Journal of Economic and Management Sciences, 18(3). doi:10.4102/sajems.v18i3.926.

Toumi, N., Benkraiem, R., & Hamrouni, A. (2016). Board director disciplinary and cognitive influence on corporate value creation. Corporate Governance: The International Journal of Business in Society, 16(3). doi:10.1108/CG-09-2015-0123.

Ustawa z dnia 29 lipca 2005 r. o ofercie publicznej i warunkach wprowadzania instrumentów finansowych do zorganizowanego systemu obrotu oraz o spółkach publicznych [Act of 29 July 2005 on public offering, conditions governing the introduction of financial instruments to organised trading, and public companies] (Dz.U. 2005 nr 184 poz. 1539) (Poland).








ISSN 1898-2255 (print)
ISSN 2392-1625 (online)

Partnerzy platformy czasopism