The relation profit forecast and stock performance in initial public offerings: The case of ISE

One of the main aims of the capital market regulations is to reduce uncertainity related to firms and markets as well as informing investors fully and timely. Thereby ensuring that, investors? protection will be achived despite any collusive or misleading behaviors. The information asymmetry between managers and potential investors is a main problem for investors in deciding whether or not to attend a new issue. In these situations investors have to rely on information disclosed in the IPO prospectuses. It is assumed that rational investors makes their investment decisions soley by considering the limited information disclosed in the prospectuses. The decisions of rational investors affect the demand and the prices of securities in stock exchange markets. Therefore it is assumed that the accuracy of information disclosed in prospectuses is an indicator not only of the quality of information provided to investors for the issue but also the post-issue performance of security. In this studuy, we investigate the tendency of disclosing profit forecsts in the IPO prospectuses for the future periods. We also examine the accuracy of disclosed profit forecasts from IPO firms in Turkey.For this purpose, we assessed 82 firms that went public between 1998-2007. In this research, 6 hypoteses were tested to determine the factors that affect the tendency of disclosing profit forecasts in the IPO prospectuses for Turkish IPO firms. In addition, 7 hypotheses were tested to determine the factors which affect the accuracy of profit forecasts disclosed in the IPO prospectuses. Finally, an additional 4 hypotheses were tested to determine both the factors which affect the tendency of disclosing profit forecsts in the IPO prospectuses and the resulting effects on the accuracy of disclosed profit forecasts on short- and long-term stock performance. Overall, 4 hypotheses were accepted and 13 hypotheses were rejected for the Turkish IPO markets.