Short Selling And Defense Of Chinese Concept Stocks

Plenty of Chinese concept stocks listed oversea suffered fromshort-selling during2010to2011. In order to analyses the phenomenon, thispaper research some characters of the Chinese companies listed inNASDAQ, the American Stock Exchange, and the New York StockExchange. The research shows that these companies suffered fromshort-selling have these distinguishing characteristics: they are more likelyto gain U.S. listing via reverse merger, are prone to hire small and low-reputation audit firms, have higher level of earnings management, and havea more autocratic governance structure, including higher level of ownershipconcentration, higher level of CEO duality.New Oriental (NYSE:EDU) and Harbin Electric (NASDAQ:HRBN)had taken different tricks to defend the short selling. Through analyses aboutthe two companies, this paper found that the investors overseas suspectedthe Chinese concept stocks mainly because of information asymmetry andthe lack of confidence. The accusation from the short-sellers also can beexaggerated or false. Chinese companies can take action to strengthen theirinformation disclosure, organize independent investigation and executeManagement-Buyout, etc. to defend the attack.