Since the 2007-2008 global financial crisis, companies have pushed aggressive accounting to its limits, said Muddy Waters CEO Carson Block. Most of the companies he investigates have not done anything illegal, but have exaggerated their value.
"There's a lot of low coupon debt to be refinanced," Block said. He was referring to companies that borrowed at low interest rates over the last 10 years, but now face higher coupons on repayments as rates rise.Block said that low borrowing costs had encouraged fraud because any increase in earnings, real or exaggerated, would have a large effect on the company valuation, its stock price and the amount of financing available.
Clues that led to Muddy Waters' most recent short included an in-person visit to the property sites of real estate investment company, Vivion, to find out if their rental properties were as valuable as the company said. One they found was "vacant and derelict," Muddy Waters' report about the company said. Vivion said it would respond with a further statement and that this picture was not accurate.
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