Stock price manipulation, does it really happen? I think so. Face it. The operation of markets and business is about making a profit and human nature is to be lazy. There is also an emotional desire to please others. I think most stock price manipulation starts with a desire to please investors or stock analysts. Most investors hate surprises with their investments so management is motivated to minimize surprise. But doing that seems to lead inevitably to accounting maneuvers which may smooth earnings. But I think this is dangerous. The dangers are that it becomes harder to see what the real issues and trends for a company are by analysts and investors, and more seriously management may go to far and hide real problems such as a business or product which is no longer viable.
How companies can smooth their reported numbers is too complex for me to discuss. Sometimes the actual market for a stock can be influenced. Often a company's CEO will have a substantial stock holding; this is considered good because the CEO's interest will be “aligned” with the rest of the investors. However, this can give the CEO who is also a large holder some power when there is a substantial short interest. If a large holder has their holdings in a margin account which allows their broker to loan out shares for short sales. But if the holder moves the shares to a cash account any of those shares which were loaned out for short sales are recalled which can force short covering and short covering can cause a substantial spike in a price. If this happens when some other news comes out it can be hard to read the stock price for reaction to the news.
Copyright © 2005 Jeffrey Anton