Shares in New York-traded New Oriental Education & Technology Group rebounded after it hit back at allegations from short seller Muddy Waters that it had made fraudulent financial statements.
However, fund managers said the harm had already been done, and with the group still under a US Securities and Exchange Commission investigation over its finances and shareholding structure, the share price was unlikely to quickly recover to its pre-crisis level above US$20.
Shares in New Oriental rose 18 per cent to close at US$11.25 on Thursday on the New York Stock Exchange after a two-day slump. In late morning trade yesterday, they had gained a further 11.2 per cent to US$12.45.
The private education institute is the latest target of short-seller research firm Muddy Waters, which has previously sent other US-listed Chinese companies tumbling after accusing them of financial misrepresentation. Short-selling involves the sale of borrowed stock to profit from a subsequent decline.
In an interview with the mainland's 21st Century Business Herald, New Oriental's founder and chief executive Michael Yu (pictured) dismissed the accusations made by Muddy Waters' Carson Block as 'fiction' - saying it was equivalent to equating a pimple with cancer.
Yu countered that what Muddy Waters did was 'extort money from US investors who do not understand China well'. While Yu acknowledged some of the research findings, he said short sellers had 'no moral standards' and attacked companies whether they were good or bad.
Block - one of the first to start a short-selling wave against Chinese companies which led regulators to suspend trading in four of his first five targets - said on Wednesday New Oriental had inflated its earnings by falsely claiming that it owned all of its 664 learning centres, when most of them were held by franchisees. Block said the group's financial statements from 2009 to 2011 were fraudulent and would lead to the resignation of auditor Deloitte Touche Tohmatsu.