A Tale of Two "Orientals": Lessons from Short Selling Attacks
The case focuses on the main issues faced by two US-listed Chinese companies - Orient Paper (NYSE MKT: ONP) and New Oriental Education and Technology Group (NYSE: EDU) - when they were attacked by Muddy Waters, LLC. Interestingly, the seemingly similar responses of the two "Orientals" resulted in widely disparate outcomes, offering lessons to emerging market firms eager to embrace the global capital markets. The case aims to help students understand the mechanism of short selling in the context of "bear" attacks, and expose the problems that attract short sellers' attention, as well as the actions companies can take to deal with them. It also explains the normative role that short selling plays in the market: to discipline corporate behaviour and improve market efficiency.