The Spillover Effect of Chinese Reverse Merger Frauds: Chinese or Reverse Merger?

Cross-Border Reverse Mergers: Causes and Consequences

“…Finally, there has been a series of articles in the popular business press along with academic papers focused solely on Chinese reverse merger firms and negative corporate governance outcomes (see earlier discussion of Templin (2011);, Darrough et al (2012), Jindra et al (2012); Ang et al (2012);and Lee et al (2012). So we will explicitly test 11 whether it matters for corporate governance outcomes whether a firm is from Canada or China, the two main sources of cross-border reverse mergers into the U.S.…”

“…Barzuza and Smith (2011) find that Nevada is responsible for bad governance outcomes among a set of mostly domestic American firms; our comprehensive data on cross-border reverse mergers shows, by contrast, that adopting Nevada's corporate law does not significantly predict most governance outcomes-except for restatements involving a negative effect on net income, where we welcome the consistency of their results on a very different sample of firms with our findings. Templin (2011, Darrough et al (2012), and Jindra et al (2012) focus on Chinese firms as a primary source of governance problems among reverse-merger firms, whereas Ang et al (2012: 3) suggest ways to sift through the "bad apples" of Chinese reverse merger, since some are relatively well-governed, and Lee et al (2012) argue in contrast that Chinese reverse-merger firms are well governed relative to their reverse-merger peers. We show, by contrast, that being from China actually has a relatively trivial effect on nearly all governance outcomes we examine; instead, factors such as the year of the reverse merger and the choice of a Big Four auditor are far more important causal variables in corporate governance outcomes among cross-border reverse-merger firms.…”

Short sellers’ accusations against Chinese reverse mergers: Information analytics or guilt by association?

“…The stock market is conducive to such misperceptions because investors often value stocks based on the performance of the industry, region or any other peer group to which the firm belongs. Darrough et al (2012) find that the high exposure of Chinese firms to fraud accusations affects not only the stock prices of accused firms, but also those of seemingly quite legitimate Chinese firms. Lee et al (2013) examine the initial financial health and subsequent performance of reverse mergers and find that Chinese RMs are generally healthier and fare better than both their US RM counterparts and a group of industry-, size-and date-matched publicly traded firms from the same exchange.…”

Does pedigree matter? Earnings quality of U.S. listed domestic firms via reverse mergers

“…ArellanoOstoa and Brusco (2002) report that an RM can take no more than three months compared with six to nine months for an IPO. Some firms use a reverse merger just to avoid the time-consuming process of an IPO (e.g., the U.S. fast food chain Burger King, Darrough et al, 2012).…”

“…Anecdotal evidence has shown that reputable U.S. companies entered the capital markets via RM transactions, such as Burger King, Texas Instruments, Inc., RadioShack, Berkshire Hathaway, and the New York Stock Exchange (Darrough et al, 2012). Furthermore, Gleason et al (2005) provide evidence that leading investment banks, such as Goldman Sachs, Merrill Lynch and J.P. Morgan handled RM deals, despite the belief that marginal investment services firms arrange these transactions.…”