Abstract
The economy in China is rapidly developing and the Chinese financial market could not satisfy some of the private Chinese companies’ growth and needs. These companies are seeking ways to expand their development into the global market. The market of choice was the United States financial market—one of the most developed markets that are fully protected with a full-fledged legal system and its strong enforcement organizations. However, due to the culture differences between the United States and Chinese financial markets, there would be problems uncovered during the progress of reverse mergers in regards to financial reports and accounting frauds. The sources of data applied in this thesis are mainly the secondary data from SEC filing reports, Bloomberg news reports, World Federation of Exchanges 2007 annual report, and Chinese media reports. After two decades of Chinese reverse mergers in the United States stock market, private Chinese companies broke the rules with accounting frauds and caused the negative influences in the industry. It is certainly a warning for potential companies seeking reverse merger in the United States to follow rules and standards of the financial market in the future. It also led to consequences that the United States Securities and Exchange Commission had to make stronger standards for the reverse mergers, which significantly increased the difficulty of future reverse mergers.