The Accuracy of Analyst Forecasts: IPOs at the Neue Markt in Frankfurt

Diplomarbeit, die am 26.08.2002 erfolgreich an einer Wirtschaftsuniversität in Österreich eingereicht wurde. Abstract: This paper investigates the quality of financial analysts' earnings forecasts for companies which conducted initial public offerings (IPOs) during the years 1997 to 1999. The Neue Markt in Frankfurt offers a good setting to also study the development of a young market from the beginning of its operation onwards. I find support for the notion that initial returns and analysts' forecast accuracy are negatively related. I find that analysts' forecasts were by no means accurate. Mean forecast deviation, measured as percent deviation from actual earnings per share for the fiscal year, is 186.61 percent for the average broker. The sample is inhibited by serious availability problems, but all the same allows significant findings. Table of Contents: 1.|Introduction|5 2.|Literature|10 2.1|Banking systems - the German framework|10 2.2|Conflict of interest as regulated in the German legal system|12 2.3|The quality of analysts' forecasts and conflicts of interest|16 2.4|The long-run underperformance phenomenon|23 2.5|Predicting the aftermarket performance of IPOs|27 2.6|Summary|39 3.|Data|41 4.|Method|49 5.|Empirical Results|53 5.1|IPOs differentiated by year of issue|53 5.2|Disparities of actual values|58 5.3|Earning per share found in annual reports as basis|62 5.4|IPOs differentiated by industry classification|67 5.5|Percentage deviations differentiated by Brokers|73 6.|Additional Results|80 6.1|Large German banks - seasoned vs. IPO companies|80 6.2|The time factor|86 6.3|The relevance of accounting policy|88 7.|Summary and Conclusion|92 8.|References|95...