ABSTRACT
The relationship between published financial or accounting information and share price movements is a complex one. At particular stages in the trade cycle, exceptional pressures on the company to perform occur and their directors to meet expectations. The process of income smoothing within limits, and if done correctly, is usually lawful. The effect and purpose of secret reserves was to distort reported profits and balance sheet values. A reduction of one pound in the valuation of stock will reduce profit and net assets by one pound. The traditional way by which owners are protected from theft or diversion of their money by senior managers is through their annual financial accounts. Bargaining power relates to the strength of a negotiator to obtain advantageous terms: it is the ability of a negotiator to secure an opponent's agreement to his own terms. The chapter examines the scope for manipulation of financial statements as a means of affecting investors' perceptions and share prices.
