I seem to have been reading a lot lately about how corrupt Chinese companies which are listed on the Hong Kong stock exchange tend to be. Short-sellers like Muddy Waters and AnonAnalytics have been exploiting this to point out the frauds and then cash in on the stock crash. (Which has interesting moral and practical implications, but I’ll discuss that at a later date.)What I want to know is: what is it about this corporate demographic that makes it especially prone to fraud? Is it simply that China is still primarily a command economy (one where the government can arrest you for not acting in the state’s best interests), and its hidden lines of influence distort everything they touch?
That seemed like a plausible hypothesis until I remembered reading similar things about South Korea (major intrafamilial corruption) and Japan (companies as cults). And then, of course, my mind flashes back to the Western world’s own scandals, like Enron and WorldCom.
So my questions are threefold:
1) Are Chinese companies actually more prone to commit fraud than other countries?
2) If so, why?
3) Would the same logic apply anywhere else?
Any thoughts, please let me know.
PS: Yes I am going to carry on discussing that macro paper. However it turns out I need to read three other papers just to understand the symbols used. Any day now, I swear.