Shell Games: Have U.S. Capital Markets been harmed by Chinese companies entering via Reverse Mergers?

We examine the health and performance of reverse mergers (RMs) that became active on U.S. stock markets between 2001 and 2010, particularly those from China (around 85% of all foreign RMs). As a group, RMs are small, early-stage companies that typically trade over-the-counter. Chinese RMs (CRMs), however, tend to be more mature than either their U.S. counterparts or a group of exchange-industry-size matched firms. As an asset class, CRMs outperformed their matched peers from inception through the end of 2011. Despite negative publicity (some from short sellers), we find little evidence that U.S. capital markets have been harmed by the admission of CRMs.

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