| Pub. Date | : October, 2021 |
|---|---|
| Product Name | : The IUP Journal of Accounting Research and Audit Practices |
| Product Type | : Article |
| Product Code | : IJARAP291021 |
| Author Name | : D Satish |
| Availability | : YES |
| Subject/Domain | : Finance |
| Download Format | : PDF Format |
| No. of Pages | : 22 |
LeEco, a leading Chinese conglomerate company, had ambitious plans to build a global ecosystem of products and take on bigwigs like Apple, Google, and Samsung. But the plans of Jia Yueting (Jia), Founder of LeEco, to create a great ecosystem came crashing down as the company's revenues slowed down even as expenses mounted, leading to liquidity issues and financial woes. The company ended up staring at a huge debt. LeEco, which had 15 subsidiaries and 68 affiliated partners, also had questionable related party transactions. With a plummeting share price, trading in its shares on the stock exchange was halted by the company. Amongst the gloom came a ray of hope with Jia being replaced by Sun Hongbin (Hongbin) as Chairman of LeEco. Sun is a successful Chinese real estate baron who had invested considerably in LeEco and infused $2.4 bn to bail it out. LeEco's failure also resulted in the Chinese regulators' scrutinizing shared ecosystem companies and asking them to make more disclosures and reduce related party transactions-steps which could have a major impact on Chinese tech companies. The case brings out the scope of questionable accounting policies and earnings management in related party transactions in a shared ecosystem environment and the challenge that it poses to the regulators. The case also allows for a discussion on whether LeEco's failure would have an impact on Chinese start-ups as well as on its tech companies. Finally, the case allows for a constructive debate on what should Sun do to bring LeEco out of the muddle.
They have a reputation for splashing cash around. There has been a sense of lack of
strategy to what they're doing. Fast cars and entertainment-it's a tough mix.i
- Duncan Clark, Chairman of BDA China1, November 2016
To build an ecosystem was right, but the pattern of development was wrong.ii
- Jia Yueting, Founder of LeEco, November 2017
In 2017, LeEco, a Chinese conglomerate and umbrella holding company, was facing several challenges stemming from the decisions taken by the company's founder and then chairman, Jia Yueting (Jia) to rapidly expand the company. LeEco faced a serious cash crunch, with unpaid bills and lawsuits from creditors piling up and the company not being able to complete various business deals and commitments in both the local and US markets. Experts opined that these issues not had only destroyed LeEco's reputation but also hurt the image of Chinese companies in the global market.