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A strategy used by mutual fund and portfolio managers near the year or quarter end to improve the appearance of the portfolio/fund performance before presenting it to clients or shareholders. To window dress, the fund manager will sell stocks with large losses and purchase high flying stocks near the end of the quarter. These securities are then reported as part of the fund's holdings. Performance reports and a list of the holdings in a mutual fund are usually sent to clients every quarter. Another variation of window dressing is investing in stocks that don't meet the style of the mutual fund. For example, a precious metals fund might invest in stocks that are in a hot sector at the time, disguising the fund's holdings, so clients really have no idea what they are paying for.

Creative accounting, also called aggressive accounting, is the manipulation of financial numbers, usually within the letter of the law and accounting standards, but very much against their spirit and certainly not providing the “true and fair” view of a company that accounts are supposed to. A typical aim of creative accounting will be to inflate profit figures. Some companies may also reduce reported profits in good years to smooth results. Assets and liabilities may also be manipulated, either to remain within limits such as debt covenants, or to hide problems. Typical creative accounting tricks include off balance sheet financing, over-optimistic revenue recognition and the use of exaggerated non-recurring items.

The buying or selling of a security by someone who has access to material, nonpublic information about the security. Insider trading can be illegal or legal depending on when the insider makes the trade: it is illegal when the material information is still nonpublic-trading while having special knowledge is unfair to other investors who don't have access to such knowledge. Illegal insider trading therefore includes tipping others when you have any sort of nonpublic information. Directors are not the only ones who have the potential to be convicted of insider trading. People such as brokers and even family members can be guilty.

Free cash flow has significant impact on agency cost. AGENCY COST WITH WINDOW DRESSING We investigate bank holding companies’ window dressing of quarter-end financial leverage. and bear relevance to recent SEC deliberations regarding short-term borrowing disclosure regulations. the present study firstly categorized the characteristics of free cash flow as well as the statistical methodologies. will have an impact on the relationship between agency cost and capital structure. Finally. Furthermore. in turn. Then free cash flow was introduced into agency cost theory as restriction. Cross-sectional differences in the utilization of various bonding and monitoring mechanisms are examined to determine the relative effectiveness of alternative strategies in controlling such agency cost. Concretely. debt proportion will decrease. will influence the opti-mal capital structure point to maintain the equilibrium. AGENCY COST WITH CREATIVE ACCOUNTING Agency cost theory is an important branch of capital structural theory.RELATIONSHIPS AGENCY COST WITH INSIDER TRADING This study provides a unique use of abnormal profits from insider trading to measure a specific form of agency cost between outside shareholder and insiders – the agency cost of insider trading. Publicly traded banks with greater financial leverage have more repo and federal funds liabilities in their liability structure and are more likely to engage in downward window dressing in these accounts. the existence of investing free cash flow in agency cost was proved by a model. Based on agency cost theory. finally. We find evidence of downward window dressing of short-term borrowings that appears material for a large fraction of the sample. we document that both CEO compensation and borrowing in private debt markets provide additional window dressing incentives. which suggests that equity market incentives are an important window dressing determinant. We document a negative equity market reaction to the release of information indicating greater downward window dressing in these accounts. Institutional shareholders and separation of the CEO and board chairman positions are shown to be effective in minimizing the agency cost of insider trading. We find no relation between financial leverage and window dressing for private bank holding companies. with the increasing free cash flow. the analysis shows that it will change agency cost. The potential implications of our findings go beyond bank holding companies and the financial industry. The combination of research on these two fields would help to build and extend the theoretical system. . correspondingly.