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Chinese Companies Reverse Merger in the United States Stock Market

Chinese Companies Reverse Merger in the United States Stock Market
Author: Mei Lin
Publisher:
Total Pages: 54
Release: 2013
Genre:
ISBN:

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The economy in China is rapidly developing and the Chinese financial market could not satisfy some of the private Chinese companies' growth and needs. These companies are seeking ways to expand their development into the global market. The market of choice was the United States financial market -- one of the most developed markets that are fully protected with a full-fledged legal system and its strong enforcement organizations. However, due to the culture differences between the United States and Chinese financial markets, there would be problems uncovered during the progress of reverse mergers in regards to financial reports and accounting frauds. The sources of data applied in this thesis are mainly the secondary data from SEC filing reports, Bloomberg news reports, World Federation of Exchanges 2007 annual report, and Chinese media reports. After two decades of Chinese reverse mergers in the United States stock market, private Chinese companies broke the rules with accounting frauds and caused the negative influences in the industry. It is certainly a warning for potential companies seeking reverse merger in the United States to follow rules and standards of the financial market in the future. It also led to consequences that the United States Securities and Exchange Commission had to make stronger standards for the reverse mergers, which significantly increased the difficulty of future reverse mergers.


Shell Games

Shell Games
Author: Charles M.C. Lee
Publisher:
Total Pages: 56
Release: 2014
Genre:
ISBN:

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We examine the financial health and performance of reverse mergers (RMs) that became active on U.S. stock markets between 2001 and 2010, particularly those from China (around 85% of all foreign RMs). As a group, RMs are early-stage companies that typically trade over-the-counter. Chinese RMs (CRMs), however, tend to be more mature and less speculative than either their U.S. counterparts or a group of exchange-industry-size matched firms. As a group, CRMs outperformed their matched peers from inception through the end of 2013, even after including most of the firms accused of accounting fraud. CRMs that receive private-equity (PIPE) financing from sophisticated investors perform particularly well. Overall, despite the negative publicity, we find little evidence that CRMs are inherently toxic investments. Our results shed light on the risk-performance trade-off for CRMs, as well as the delicate balance between credibility and access in well-functioning markets.


Are Reverse Merger Firms Inferior to IPO Firms - Evidence from U.S.-listed Chinese Firms

Are Reverse Merger Firms Inferior to IPO Firms - Evidence from U.S.-listed Chinese Firms
Author:
Publisher:
Total Pages:
Release: 2015
Genre:
ISBN:

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This study has taken as sample all the Chinese companies ever listed on U.S. stock exchanges before December 31, 2012 in order to examine whether the manner of listing, -that is, through an IPO or a reverse merger-, is correlate to the post-listing quality of the firm. Institutional environment and corporate governance are taken as quality measures. Firms listed through reverse merger are found significantly related to a poorer service provided by market intermediaries in their home regions and using external auditors with less prestige. This may partly explain why many cases of financial frauds found since early 2010 involve Chinese reverse merger firms. The findings suggest the need for more stringent requirements and more monitoring with regard to the conduct of audit, concerning both the firms that seek listing through reverse merger and all the auditing firms in the market. Moreover, regional governments in China are expected to make efforts to improve the service level of market intermediaries in order to foster local enterprises and facilitate cross-listings.


GAAP Difference Or Accounting Fraud? Evidence from Chinese Reverse Mergers Delisted from U.S. Markets

GAAP Difference Or Accounting Fraud? Evidence from Chinese Reverse Mergers Delisted from U.S. Markets
Author: Yimiao Chen
Publisher:
Total Pages: 25
Release: 2015
Genre:
ISBN:

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In 2012, one in four federal securities class-action lawsuits filed in the U.S. involved Chinese Reverse Merge companies (CRMs). However, these lawsuits sometimes have encountered difficulties in court due to insufficient direct evidence of accounting fraud. We propose a new method for fraud detection: use Chinese companies dual-listed in the U.S. and China to establish a benchmark for the normal GAAP difference between the two countries. Using this methodology, we find that only a small fraction of the discrepancies between delisted CRMs' financial statements filed in the U.S. and those filed in China can be attributed to GAAP difference. This suggests that the remaining discrepancies, which are large and unexplained, are indeed due to accounting fraud. Therefore, it is reasonable to conclude that delisted Chinese Reverse Merger companies enticed U.S. investors with favorable and fraudulent accounting and financial data.


Betting on China

Betting on China
Author: Robert W. Koepp
Publisher: John Wiley & Sons
Total Pages: 215
Release: 2012-03-15
Genre: Business & Economics
ISBN: 1118087178

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The promise and perils of Chinese stocks in American stock markets Betting on China takes readers on an illuminating journey into the often confusing and poorly understood world of Chinese stock issuances in America. With insightful qualitative and quantitative analysis, it looks at the phenomenon of equity and capital exchanged between the world's two largest economies and the implications for global finance. Written in an accessible narrative style and amply supported by hard data, the book examines the context and underpinnings of the Sino-American equity relationship, revealing its core dynamics through real-world case studies that range from the precedent-setting blockbuster IPO of China Mobile to the near breakdown of the U.S.-China equity exchange mechanism brought about by short seller attacks on Chinese concept stocks. Combining an insider's eye with an outsider's objectivity, American born author and Beijing-based consultant Robert Koepp explores the reasons and the means by which China, America, and the global economy reap enormous gains from the process of Chinese companies issuing equity shares on U.S. stock markets. Betting on China exposes the complexities and nuances of a vital but underappreciated pillar of modern international finance and offers a window into China's role as a dominant but still modernizing economic superpower. Analyzes on a macro- and microscale the forces that move Chinese companies to raise capital on NASDAQ and the New York Stock Exchange and what this means for the world at large Explores the real stories behind why and how China-based enterprises develop as public companies listed in the United States—and why government regulations need to work in support of and not against this force of market nature Shows that the "betting" on China that occurs through the U.S. equity market exchanges is critical for getting an accurate picture of China's position and prospects in our interactively connected global economy Detailed but accessible, Betting on China is essential reading for global finance professionals, policymakers and regulators, students of finance, people doing business in China, and anyone curious about China's place in—and impact on—the global economy today and in the years to come.


Mergers and Acquisitions and Takeovers in China

Mergers and Acquisitions and Takeovers in China
Author: Cristiano Rizzi
Publisher: Kluwer Law International B.V.
Total Pages: 288
Release: 2012-07-01
Genre: Law
ISBN: 9041142134

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This hugely informative book - unique in its overarching emphasis on the laws governing M&As and takeovers in China - not only shows those interested in investing in China how to avoid legal mistakes and miscalculations. In addition to offering singular interpretive analysis of strictly legal matters, the authors concentrate extensively on the all-important cultural and environmental factors that can make business in China daunting for the uninitiated. Extending this double emphasis on cultural understanding and M&A and takeover expertise, the authors clearly explain such elements of how to enter the Chinese market (or expand a presence in it) as the following: concepts of guanxi and mienzi; understanding China’s rising middle class; valuation of state-owned assets; maximum permitted debt-to-equity ratios; key PRC government agencies involved in the approval of transactions; taxation framework for enterprise restructuring in China; employees as an asset; share swaps; prohibited trading activities when acquiring a listed company; legal framework for dispute resolution; administrative proceedings; liabilities for breach of contract; and responding to intellectual property rights abuse. The authors provide precise details on the characteristics of, and procedures involved in, the wide range of investment options available in China, with knowledgeable guidance on the choice of investment options and protection of investor interests. Because China is clearly a major global economic force and will continue to be so in the foreseeable future, this thorough but down-to earth guide is of immeasurable practical value to foreign investors of every kind, from multinational corporations to individual venture capitalists.


The Spillover Effect of Fraud Allegations Against Chinese Reverse Mergers

The Spillover Effect of Fraud Allegations Against Chinese Reverse Mergers
Author: Masako N. Darrough
Publisher:
Total Pages: 55
Release: 2015
Genre:
ISBN:

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We examine the spillover effect of fraud allegations against Chinese companies that became public through reverse mergers (CRMs) instead of IPOs. Both short sellers and regulators took active interests in the frauds allegedly perpetrated by CRMs. Once the public became alarmed by the frequency of these alleged-fraud revelations, the stock prices of both the offending and non-offending Chinese companies (both CRMs and IPOs) tumbled. The intensity of this negative spillover effect increased with short selling activities, suggesting that short sellers played an important role. Since US-listed, non-Chinese RMs have escaped the wrath of investors, the market reaction appears to be based on the country of origin rather than the method of going public. The wide-spread spillover effect on seemingly non-fraudulent companies indicates a serious credibility gap for Chinese companies in general, calling for coordinated actions by the Chinese and US regulators to restore investors' confidence.


Auditor Reverse Merger Expertise

Auditor Reverse Merger Expertise
Author: Juan Mao
Publisher:
Total Pages:
Release: 2017
Genre:
ISBN:

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This study investigates if hiring auditors with Chinese reverse-merger expertise affected 182 Chinese companies that executed reverse mergers with U.S. shell companies from 2003 to 2011 to become U.S. publicly traded companies (Chinese Reverse-merger companies, or CRM companies). We find that CRM companies that employ CRM-expert auditors pay higher audit fee premiums and are more likely to up-list to national exchanges, when they are compared to CRM companies with non-CRM-expert auditors. Additional analyses suggest that clients of CRM experts also are more likely to file annual financial reports on time, but CRM-expert auditors are not associated with fewer misstatements in financial reporting or continued trading on national exchanges. This suggests that CRM specialist auditors help clients navigate regulatory requirements for up-listing, but they do not achieve improved financial reporting quality.


Privatizing China

Privatizing China
Author: Carl E. Walter
Publisher: John Wiley & Sons
Total Pages: 340
Release: 2003-06-25
Genre: Business & Economics
ISBN:

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Much is written about the various efforts aimed at reforming China’s state-owned enterprises. But in all this literature the Chinese government’s determined effort to use the equity capital markets as a tool of enterprise reform has been virtually ignored. The fact is that during the past decade this has been, and will continue to be, the principal thrust with regard to the reform of state-owned enterprises. On-again, off-again, noises about bankruptcy, M&A solutions and asset management companies are only sideshows in the process. Carl E. Walter is a Managing Director of JP Morgan and Chief Operating Officer of its China businesses. Prior to joining JP Morgan in 2001, Mr. Walter was a Managing Director and member of the Management Committee of China International Capital Corporation. He was Chief Representative in Beijing for Credit Suisse First Boston from 1993-8. During his decade in China, Mr. Walter has participated in a number of pathbreaking international and domestic share listings and debt issues for Chinese companies, banks and the Ministry of Finance. He holds a PhD from Stanford University and a graduate certificate from Beijing University. Fraser Howie is an independent financial analyst located in Beijing. Over the past ten years he has worked in Hong Kong trading equity derivatives at Bankers Trust and Morgan Stanley. After moving to China in 1998 he worked in the Sales and Trading Department of China International Capital Corporation then with a domestic retail financial services company and most recently with China M&A Management Company.