U.S.-Listed Chinese Firms in Accounting Fraud Scandal: Who Are They? Where Are They?

• In Event: Reception with ELS Posters
  In Poster Session: Research Poster Session I and Friday Reception

Abstract

Chinese economy has been growing fast in the past 30 years and there have emerged a great number of enterprises in China. In the first decade of the 21st century, more and more Chinese firms started being listed overseas, especially in the US markets, including the NYSE, Amex and Nasdaq. Those stocks were popular among investors as they were naturally connected with the fast growing industry and business in China and they were called "China concepts stocks". However, since year 2006 an increasing number of US-listed Chinese firms have been found out forging documents and making fraudulent financial reports. American investors and regulators including the Securities and Exchange Commission (SEC) were cheated before the scandals were public. Then various investigations were started toward those China concepts stocks by short sellers and professionals. Whenever there was evidence that a firm was exaggerating its performance in balance sheets, its stocks were shorted. After the confirmation of the fraudulent behaviors, those dishonest firms were forced to be delisted. In this paper I identify 263 stocks listed in the US exchanges with Chinese background and analyze their characteristics like headquarters, incorporation countries, auditing firms, listing method and delisting situation. Data analysis reveals interesting results that companies headquartered in small Chinese cities, audited by smaller auditing firms and listed via reverse merger transactions have a higher probability of being delisted.

Author

• Zigan Wang, Columbia University