Manipulation is one of the important issues in securities markets because manipulative actions send false signals to the investors and make them buy or sell securities they otherwise would not buy or sell. There are different types of manipulations that can deceive investors. One type of manipulation is financial information manipulation. Manipulators, who use this type of manipulation, distort information in the financial statements in order to give false information about the prospects of the issuing firms. This paper attempts to predict financial information manipulation by using the multivariate statistical techniques and neural networks. A number of financial ratios are used as explanatory variables. The multivariate statistical techniques used are discriminant analysis, logistics regression (logit), and probit. Unlike other studies, the present study takes multicollinearity between financial ratios into account and conclude that the estimated multivariate statistical models rather than the neural networks can be used as early warning systems to detect possible financial information manipulations. 

Manipulation has been a major issue in securities markets for a long time. Manipulation can be defined as acts, which lure individuals to buy or sell a security. Manipulators send false signals to investors and deceive them. The main purpose of the manipulators is to make investors buy or sell certain securities based on these false signals and make a gain at the their expense. Manipulation is classified as action-based manipulation, information-based manipulation and trade-based manipulation (Allen and Gale, 1992). Another type of manipulation, which has emerged recently, is the financial information manipulation. In an action-based manipulation, manipulators take actions to deceive the investors. In an information-based manipulation, manipulators release false information or spread rumors for the same purpose. In a trade-based manipulation, manipulators engage in fraudulent trading to attract other investors.

Financial information manipulation is different from the rest. In this type of manipulation, information in the financial statements is distorted. Most of the investors base their investment decisions on the information contained in the financial statements. This information presents the financial position of a firm and the results of its operations. Profitability, liquidity, risk, earnings growth, etc., are basic information used in security analysis. This information must be fair and comparable. It must be free of misstatements (intentional or unintentional) so that it presents the financial position and the results of a firm's operations fairly in all respects. It must be comparable so that the prospects of different firms that issue securities can be assessed equally.

Applied Finance Journal, Financial Information Manipulation, Statistical Techniques, United States International Trade Commission, mergers and Acquisition, Stock Exchange Markets, Capital Markets Board, Financial Services Companies, Multivariate Statistical Methods, Financial Analysts, Managerial Finance, Financial Management.