Stock Manipulation by China's Pangang Group
(10 pages of text)
In April 2011, a university professor of accounting and finance was examining the financial statements of Pangang Group Steel Vanadium & Titanium Company (Pangang), a leading Chinese steel manufacturer listed on the Shenzhen Stock Exchange. Pangang had a dramatic turnaround in its reported net income in 2010 with its share price rising over 60 per cent in a six-month period. The professor suspected that the controlling shareholder of Pangang — Anshan Iron and Steel Group Corporation (Ansteel) — had been manipulating Pangang’s earnings to artificially inflate the stock price. The timing coincided with the expiry of put options awarded by Ansteel to minority shareholders as part of a restructuring. Was Pangang manipulating its earnings to influence stock prices? Was there sufficient evidence to expose the fraudulent scheme to the public or report the case to the Chinese securities regulators?
This case is suitable for an undergraduate business or MBA program in a variety of contexts, including an introductory or advanced course on international business, corporate finance, securities markets, valuation, or accounting. After completion of the case, students should be able to:
- Examine a case of potential stock price manipulation and detect how it has been perpetrated.
- Decide what to do in an ethical situation where there is the potential for corporate wrongdoing.
- Explore the incentives of controlling shareholders and the impact on minority shareholders.
- Understand the institutional features of equity markets in mainland China.
China, Large, 2011
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