[Flashback] Good Apples, Bad Apples: Sorting Among Chinese Companies Traded in the US

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2024826

Posted by John SOH Yong Ye, Year 4 undergrad at the School of Economics, Singapore Management University

Abstract:

Committing financial fraud is a serious breach of business ethics. However, there are few large scale studies of financial fraud that involve ethical considerations. In this study, we investigate the pervasive financial scandals, which by the end of 2012 involved more than a third of the U.S.-listed Chinese companies. Based on a sample of 262 U.S.-listed Chinese companies, we analyze factors that differentiate between firms that commit financial fraud and those that do not. We find that firms more predisposed to unethical behavior, due to their low regional social trust in the home country and low respect for regulations and laws as proxied by political connections, are more likely to commit accounting and financial fraud. They take advantage of low hurdles for listing via reverse mergers and avoid third-party monitoring through poor governance and auditors. Finally, we find evidence after these scandals of non-fraudulent firms differentiating themselves from the fraudulent firms by sending costly signals such as insiders purchasing shares, increasing dividends, and going private.

Advertisements

China uncovers power abuses, nepotism at oil giant

http://news.asiaone.com/news/asia/china-uncovers-power-abuses-nepotism-oil-giant

Posted by Joel CHUA Yong Sheng , Year 3 undergrad at the School of Business, Singapore Management University

BEIJING – China’s anti-corruption watchdog said on Saturday that it had uncovered evidence of graft at China Petrochemical Corp (Sinopec Group), warning the state-owned oil giant to take strong action to eradicate kickbacks, nepotism and theft.

Sinopec, the parent company of China Petroleum & Chemical Corp , must take steps to stop “power-for-money dealings” and prevent the loss of state assets, the Central Commission for Discipline Inspection (CCDI) said. Continue reading

NVC Lighting says founder enters pledge deal without knowledge of board; Wang Donglei, who is now chairman of NVC, had alleged that founder Wu Changjiang embezzled about RMB573m

http://www.scmp.com/print/business/china-business/article/1704557/nvc-lighting-says-founder-enters-pledge-deal-without

NVC Lighting says founder enters pledge deal without knowledge of board

Friday, 06 February, 2015, 4:53pm

Toh Han Shihhanshih.toh@scmp.com

NVC Lighting, one of China’s biggest lighting manufacturers, recently discovered its founder and former chief executive Wu Changjiang has made a pledge agreement of 23 million yuan (HK$29.2 million) without the knowledge of its board of directors, the Hong Kong-listed firm announced on Friday. “The board is not presently aware of a fair and reasonable justification for the purported entering into of the agreement, nor has the board been provided with a proper explanation by Mr. Wu which indicates that the agreement is in the interests of the company or its shareholders. The company is taking steps to obtain more details on the circumstances in which the agreement was entered into, and is obtaining legal advice to protect its interests,” said NVC.

Wu was dismissed last August 2014. Police in Huizhou formally registered a case of “money embezzlement by Wu and others” on October 22. NVC announced in November that hundreds of millions of yuan were withdrawn from the company’s bank accounts in Chongqing without the board’s permission in relation to loan pledges entered into by Wu. In December, mainland media reported that Wu was under criminal detention in Huizhou, Guangdong province. Wang Donglei, who is now chairman of NVC, had alleged that Wu embezzled about 400 million yuan from NVC’s bank accounts in the Chongqing branches of Industrial and Commercial Bank of China and China Minsheng Banking Corp, and an additional 173 million yuan from the Chongqing branch of Bank of China. Continue reading