Topic: The Role of the Director
Social Networks in Spreading Misconduct: The Case of Reverse Mergers
Speaker:Zigan Wang, Assistant
Professor of Finance, School of Economics and Finance, University of Hong Kong
Date: September 4th (Fri.)
Time: 12:30pm-1:30pm
Location: Building 4, Room 101
Language: English
Abstract:
In the past decade, a
growing number of foreign firms were listed in the United States through
reverse merger, a non-IPO listing technique that requires less information
disclosure. Using a hand-collected data of US-listed Chinese firms, this paper
asks and answers three questions. First, are the foreign firms as good as the
bonding theory suggests? No, I find widespread delistings in these firms
and I summarize the evidences in lawsuit filings showing their misconduct.
Second, why do the bad firms list? I find that the firms’s directors profit
from fast stock sales after listing. Moreover, these firms tend to be
US-incorporated reverse mergers that are headquartered in small cities, are
audited by small firms, and that change their auditors frequently. Third, how
did the foreign owners learn this technique to avoid the US regulation? Using a
social network analysis, I find that the firms are assisted by financial
professionals to help them. Further, I find that the social network of the
linked directors facilitates the spread of their misconduct. During the
wrongdoers’s listings, the investors in these firms lost at least $811 million.
However, the penalties charged to the wrongdoers only accounted for 4.19% of
this loss.
About the speaker:
Zigan Wang is an
assistant professor of finance at School of Economics and Finance, University
of Hong Kong. His current research interests are empirical asset pricing,
empirical corporate and international finance. Dr. Wang earned a Ph.D. in economics
from Columbia University and B.A. in economics from Tsinghua University. Before
joining the University of Hong Kong, he was an adjunct instructor at the State
University of New York at Old Westbury.
