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He discovered that the firm’s fundamental factors exercise the most significant impact on stock prices. The EPS was found to be the most influencing factor over the market. Studying the effects of the Iraq war on US financial markets, Rigobon and Sack (2004) discovered that increases in war risk caused declines in Treasury yields and equity prices, a widening of lower-grade corporate spreads, a fall in the dollar, and a rise in oil prices. A positive correlation exists between the price of oil and war. They argue that war has a significant impact on the oil price. Tymoigne (2002) argue. | Stock Splits as a Manipulation Tool Evidence from Mergers and Acquisitions Shourun Guo Mark H. Liu and Weihong Song We document that acquiring firms are more likely than nonacquiring firms to split their stocks before making acquisition announcements especially when acquisitions are financed by stock and when the deals are large. Our findings support the hypothesis that some acquiring firms use stock splits to manipulate their equity values prior to acquisition announcements. Using earnings quality as a proxy for firms intention to manipulate we find that acquirers with low earnings quality i.e. acquirers that are more likely to use stock splits to manipulate their stock values have lower long-run stock returns compared with their benchmarks especially when the deals are financed with stock. In contrast acquirers with high earnings quality do not show that pattern. Our evidence complements and extends the findings in the literature that some acquirers manipulate their stock prices before stock-swap acquisitions. This study suggests that target shareholders should use information such as earnings quality and stock splits to discriminate among acquirers and ensure that exchanges are conducted on fair terms. After recent accounting scandals in once high-flying firms like Enron and WorldCom management behavior has been under close scrutiny by regulators financial media and researchers. Jensen 2005 argues that the dramatic increase in corporate scandals around the turn of the century can be explained by agency costs of overvalued equity when a firm s equity is substantially overvalued managers are forced to take value-destroying actions some perhaps fraudulent to satisfy the market s unrealistic growth expectations. One action that firms often take is to acquire other companies using their overvalued equity. Recent studies show that some firms engage in certain activities that inflate their equity values or prevent their overvalued prices from falling before .
