Abstract
This paper examines the legal issues facing management concerning the disclosure of earnings forecasts in a prospectus. In particular, the extent of the statutory duty to make disclosures in a prospectus, and potential liability for failure of this duty are discussed in the light of current legislation and recent caselaw in Australia on the issue of misleading prospectus disclosures. Two scenarios are examined: the consequences of a failure to provide a profit forecast; and the consequences flowing from an inaccurate forecast. The paper concludes that the legal standard of disclosure relies upon evidence gained from empirical research into the disclosure conduct observed by capital raising firms and that there is scope for more current empirical research to test the effect changes in the law may have had on the disclosure decisions being made by managers.
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