Pro Forma Financial Information Research Articles

Valuing Initial Public Offerings Using Article 11 Pro Forma Financial Information in the Prospectus*

ABSTRACTWe investigate whether Article 11 pro forma financial information assists investors in valuing IPOs. While the SEC expects it to be helpful in assisting investment decisions, Article 11 pro forma financial information is based on registrants' understanding and assumptions, and registrants can exercise their own judgment when preparing pro forma financial statements. It is therefore an empirical question whether the information contained in pro forma financial statements is useful to investors. We examine the association between pro forma adjustments of earnings and book value of equity and the IPO offer value and find asymmetric results. While positive pro forma adjustments of earnings and book value of equity are positively associated with the IPO offer value, negative pro forma adjustments of earnings and book value of equity are negatively associated with the IPO offer value, suggesting that negative pro forma adjustments are priced as growth opportunities. Additional analyses reveal that the association between pro forma adjustments of book value of equity and the IPO offer value varies across different time periods and industries and that pro forma adjustments of book value of equity are initially mispriced by investors. In contrast, we do not find similar results for pro forma adjustments of earnings. Further empirical tests show that the asymmetric results of mispricing of pro forma adjustments of earnings and book value of equity may be explained by the requirements of Article 11 of Regulation S‐X for pro forma adjustments dictating that adjustments to earnings reflect only recurring items while adjustments to book value reflect both recurring and nonrecurring items.

The Contents of the Prospectus: Rules for Financial Information

In keeping with the Prospectus Regulation’s aim of providing investors with any necessary information that is material for making an informed assessment of, among other things, the assets and liabilities, profits and losses, financial position, and prospects of the issuer, financial information is a key element of the prospectus information package. Hence, although under EU law the content and the format of a prospectus both depend on a variety of factors, such as the type of issuer, security and issuance, the prospectus must always provide detailed information concerning the issuers’ assets and liabilities, financial position and profits or losses. Against this backdrop, and with a view to developing a comprehensive analysis of the rules for financial information set out by the EU prospectus regime, I divide this Chapter as follows: Part II provides an overview of relevant rules concerning the financial information that must be included in the prospectus; Part III examines historical financial information; Part IV deals with some specific issues concerning pro forma financial information; finally, Part V analyses the definition of profit forecasts and estimates along with related audit and disclosure requirements. Part VI sets out some concluding remarks.

Valuing IPOs Using Article 11 Pro Forma Financial Information in the Prospectus

We investigate whether Article 11 pro forma financial information assists investors in valuing IPOs. While the SEC expects it to be helpful in assisting investment decisions, Article 11 pro forma financial information is based on registrants’ understanding and assumptions and registrants can exercise their own judgement when preparing pro forma financial statements. It is therefore an empirical question whether the information contained in pro forma financial statements is useful to investors. We examine the association between pro forma adjustments of earnings and book value of equity and the IPO offer value and find asymmetric results. While positive pro forma adjustments of earnings and book value of equity are positively associated with the IPO offer value, negative pro forma adjustments of earnings and book value of equity are negatively associated with the IPO offer value, suggesting that negative pro forma adjustments are priced as growth opportunities. Additional analyses reveal that the association between pro forma adjustments of book value of equity and the IPO offer value varies across different time periods and industries and that pro forma adjustments of book value of equity are initially mispriced by investors. In contrast, we do not find similar results for pro forma adjustments of earnings. Further empirical tests show that the asymmetric results of mispricing of pro forma adjustments of earnings and book value of equity may be explained by the requirements of Article 11 of Regulation S-X for pro forma adjustments dictating that adjustments to earnings reflect only recurring items while adjustments to book value reflect both recurring and nonrecurring items.

The Research on Measuring Determining and Evaluating Framework of Management Pro Forma Financial Information in China

Since China's capital market is facing the emerging & transition development environment, as the share-split structure reform is gradually improving, the confidence of investors of listed companies is slowly restored. Therefore, improving and perfecting the system of information disclosure of listed companies be one of the most important tasks to restore the credibility and revive the market. Certainly, historical financial statement may also help an investor assess an entity's future cash flow and investment value, but much attention has been directed to measurement and disclosure of pro forma financial information. This professional information may take the form of forecasts, projections, feasibility studies and others. This paper is devoted to empirical research to examine. On the basis of extraction from domestic and foreign literatures - earning forecast model, which reveals some variables to predict the prospective financial information measurement, it develops forecast antecedents, characteristics, consequences and uncertainty & risk determinants framework. Beginning by descriptive analysis of listed companies in China for nearly four-year samples of these variables, and through factor analysis, non-parameter test and multivariate regression model for the analysis and empirical testing, it certifies pro forma financial information measuring determining and evaluating framework, and takes its utility.

Applying inductive learning to enhance knowledge-based expert systems

This paper describes the use of inductive learning in MARBLE, a knowledge-based expert system I have developed for assisting business loan evaluation. Inductive learning is the process of inferring classification concepts from raw data; I use this technique to generate loan-granting decision rules based on historical and proforma financial information. A learning method is presented in this paper that can induce decision rules from training examples.