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Yinguangxia: An Epitome of Corporate Governance Flaws in China  
 
Product Ref: 07/358C Company: Guangxia (Yinchuan) Industry Co. Ltd
Yinguangxia

Product Type: Case Industry: Biopharmaceutical Industry

Related Product(s): Teaching Note
Authors: Amy Lau   Claudia H L Woo
Yinguangxia ("YGX"), a listed company in China, had captured media attention since the mid-1990s for its contribution to China's eco-agricultural industrialisation and modernisation of traditional Chinese medicine. The astonishing leap of its share prices, about 440% in 2000, caused journalists at Caijing, a reputable local financial magazine, to be suspicious and they set off to investigate YGX. On 2 August 2001, Caijin published an article alleging YGX,s misrepresentation of export activities, which involved Tianjin Guangxia,s (a subsidiary company in Tianjin) sale of biologically extracted products to a German company, Fidelity Trading GMBH. A profit overstatement of US$93 million from 1998 to 2001 was eventually revealed by the China Securities Regulatory Commission, and four of the company,s senior officials, including the former CEO and CFO of YGX and Tianjin Guangxia, were sent to jail for forging documents and fraudulent misrepresentation of information. The operating licence of the company,s external auditors, Zhongtianqin, was revoked and the professional certificates of two of its certified public accountants were repealed. The scandal also resulted in the investors, crusading pursuit of private indemnification against their investment loss; the legal protection of private shareholders in China remained an issue of great concern in the country. Having been a top performer on the Chinese stock market, YGX,s fallout revealed the deficiencies of the corporate governance system in China. It also brought to light the problems involved in auditing practices in China.
Functional Area : Accounting & Control
Social Enterprises & Ethics

Issues: Accounting Fraud, Corporate Governance, Business Ethics, Financial Reporting, Fraud Risk Management
Length: Text: 17 pages
Exhibits: 6 pages
Country: China (People's Rep. of)

Pub. Year: 2007 Level of Difficulty: 3
         
This product type is available in the following language(s):      English
         
Related Information: N/A
 
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