Relationship between the Earnings Forecast Error and the Returns of IPO

This research aimed to determine the relationship between the earnings forecast error and its components with the returns of new companies entering Tehran stock exchange. From the point of aim this research is a basic research, and from the point of methodology it is a descriptive-correlative research. The research population consists of that group of companies which were accepted in Tehran stock exchange from the beginning of 2003 to the end of 2011, and their shares were publicly offered for the first time. 63 companies were chosen as the research samples. For collecting data, the companies’ financial information was extracted from the financial statements. In this research, in addition to descriptive statistics, in inferential statistics section, the Kolmogorov-Smirnov, Pearson’s correlation coefficient and multiple regression tests were used by the use of SPSS 18 software. The research results showed that a significant relationship exists between the earnings forecast, company size, standard deviation of growth, company life and return on the assets with the variable of companies’ ordinary returns, and the regression analysis results show that four variables of earnings forecast error, company size, standard deviation of growth, company life and return on the assets can generally explain 29% of the companies’ ordinary returns changes in the initial offering. Based on the results of this research, it is recommended that if the investors are looking for acquisition of stock return, they should choose the stock that has more earnings forecast error for each share compared to the other options of investment. At the end, a few research suggestions are also recommended to the future researchers.