Does it help firms to secretly pay for stock promoters?
N Massoud, S Ullah, B Scholnick
Journal of Financial Stability | Published : 2016
We examine deals between listed firms and promoters who have been secretly hired to increase their stock prices. This behavior by the secret promoter is illegal (and leads to prosecution) but the actions of the hiring firm are legal. We use data from these prosecutions to analyze the behavior and motivations of the hiring firms. We find that secret promotion leads to an initial increase in the price and trading volume of the firms on the date that the secret promotion started. Subsequently, however, we find that this increase in price is reversed when regulators (e.g. SEC or NASD) take action against these promoters for not disclosing their relationships with the hiring firms. We find that t..View full abstract