On the child abuse case of RYB Edu – What happened to Wall Street?

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Recently the child abuse case of RYB kindergarten in Beijing has quickly arrested much attention on social media. RYB Education’s stock price went down by 40% after the case was exposed. However, it had gone back significantly to about 85% of the previous level.

Yesterday the Chinese police Bureau announced the result of investigation of the case, saying that the group sexual abuse claim was made up by a parent, and that the individual suspect (female) for the abuse (not sexual) has been arrested. The announcement also says that the hard drives that stored the kindergarten’s surveillance videos were damaged because of frequent power outage. The portion of video records that got restored did not show evidence of abuse.

I will leave this up to you to decide to believe the above or not. What I find confusing is the rapid bounce-back of RYB’s stock price, even before the above official announcement.

I cannot think of any other motive to purchase RYB’s stock after the abuse case is exposed, other than to make a financial gain, or just a quick one (as the company announced share buyback program). There is nothing to bet on other than RYB’s ability to manipulate the Chinese justice system, the “forgettability” of this “incident”, and the “forgivingness” of RYB’s current and potential customers. An early childhood education provider, judged NOT by its ability to provide quality early learning programs, to ensure the safety of children, but by its potential to make money. What went wrong?

I trust that if it’s an average person evaluating the stock, he or she will not purchase the stock after the case. Their conscience would keep him / her from supporting a company that has done such horrible crimes to small children. At least, financial gain is not the thing to keep me sound asleep at night.

So I’d like to attempt a hypothesis that the stock price bounced back because the investment decision is far removed from the person that puts the money in, and is done by financial institutions which are mainly, if not solely, judged on its ability to generate financial returns. In this case, the worth of a company is simplified into a few pages of “financials.” Whether or not they have really made a positive difference, whether or not they have done things ethically, whether or not they have committed crimes, are all irrelevant and ignored. No wonder RYB’s stock price could recover so fast.

I am a mother of a two-year-old boy. We live in Beijing. Earlier I asked my husband, if we had a girl, how could you protect her from experiencing such horrible things. The answer is still to be found. Just the thought of sending her to an average kindergarten in China horrifies me.

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