According to the Financial Times, at least a dozen Chinese companies failed to meet the deadline to file their annual results with exchanges in the United States. These delays have exacerbated concerns pertaining to the management capability of these firms and the potential for fraud within them.
The inability for a company to submit its books on time does not exactly instill confidence in investors, as it implies these firms lack the organizational wherewithal requisite in running a listed firm, or even potentially that the company and the auditors are having trouble reconciling the firm’s books with international accounting standards.
On the whole, Chinese small-cap firms have seen downward pressure for more than a year as a result of duplicity from firms like RINO International (RINO, quote) and Sino-Forest. Although many are legitimate firms, most trade at miniscule multiples because investors are loathe to expose themselves to a company that could, in theory, be worthless.
Investors should be particularly careful with companies that failed to file on time. LDK Solar (LDK, quote), Qiao Xing Mobile Communications (XING, quote), Ambow Education (AMBO, quote), Chinacast Education (CAST, quote), and Vimicro International (VIMC, quote) all requested additional time to hand over the required information.
Missing this deadline is by no means an automatic indictment of these companies, but it does raise more questions than answers in the short-term, meaning that traders should tread carefully when exploring these names.
Disclaimer: Neither author nor immediate family has any position in any of the names mentioned, nor does author have any intention of starting one in the next 72 hours