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Market Failure And Reemergence: A Study Of Chinese Firms Listed In The Us., Hai Lu, Hai Lu, Wei Luo
Market Failure And Reemergence: A Study Of Chinese Firms Listed In The Us., Hai Lu, Hai Lu, Wei Luo
Research Collection School Of Accountancy
Our study documents a “Lemons” market failure of Chinese firms listed in the US in 2011 and a subsequent rebound by 2013. Our tests reveal that there was little difference in ex ante observable characteristics of fraudulent and non-fraudulent Chinese firms listed in the US prior to 2011 while entrepreneurs appear to have known their type. We document substantial costs of dishonesty and the failure of traditional market signaling mechanisms such as auditor or underwriter quality. We also show a return of Chinese firms after US and Chinese regulatory intervention in 2013 although this intervention was insufficient to fundamentally change …