I recently wrote an article on the limitations of financial ratio analysis, one of the most popular forms of financial analysis. One of the issues I discussed was window dressing by business firms. As a financial professional and financial writer, I'm addicted to the financial news of the day and I couldn't believe what I found right after I published my article.
On the popular blog, SeekingAlpha, an article was written on window dressing and the financial markets. After reading the article, I realized that the author and I had really written about the same thing.
I addressed the fact that some businesses, unfortunately, feel that it is necessary to make financial investments and manipulate their financial statements at the end of a quarter to pump up their financial statements. The author of the other article essentially said the same except he addressed mutual funds. I conclude that window dressing flies in the face of corporate governance. The author of the other article concludes, based on a 10-year study he has done, that if window dressing exists, it does not have any significant effect on the financial markets. There were some problems with the data and the author mentions that, in order to draw a strong conclusion, further study with individual stocks would have to be done.
The conclusion of my article is that even an attempt at window dressing constitutes fraud and the attempt to manipulate data to influence investors.