--Evergrande Real Estate says allegations of financial irregularities made in a research report by short-seller Citron Research are untrue

--Evergrande shares dropped sharply Thursday after Citron's report, but have recouped some losses

--Citron founder Andrew Left said the firm had not spoken with executives at Evergrande before issuing the report

(Updates stock prices in 6th paragraph, adds details from Citron's report in paragraphs 8 and 10, Evergrande's latest financial details in final paragraphs)

 
   By Esther Fung 
 

Evergrande Real Estate Group Ltd. (3333.HK) Thursday become the latest Chinese company to face questions over its accounting practices, denying allegations of financial irregularities made in a report by Citron Research as its shares fell sharply in Hong Kong.

Evergrande "noted an institution has issued a report on (June 21) that the company has used accounting tricks and bribes to hide the fact that it is truly insolvent."

"The company would like to clarify that the allegation in the report is untrue," the Guangzhou-based, Hong Kong-listed developer said in a statement to the Hong Kong stock exchange.

The Evergrande claims come amid greater scrutiny of Chinese companies listed overseas, with a series of alleged accounting frauds this year--mostly involving little-known Chinese companies listed in the U.S. Those events have contributed to a shift in sentiment among investors toward Chinese companies.

U.S.-based short-seller Muddy Waters targeted Canada-listed Sino-Forest Corp. earlier last year, alleging it overstated its assets and revenue. Sino-Forest, which was under investigation by Canada's largest securities regulator, said last month it is reviewing the allegations made by the Ontario Securities Commission.

Shares in Evergrande fell Thursday after the report from Los Angeles-based short-seller Citron Research circulated in the market. That report alleged accounting irregularities at the company. A summary of the research report is publicly available on Citron's web site.

The stock closed down 11.4% at HK$3.97, off an intraday low of HK$3.60. Trading volume jumped to HK$3.71 billion, making the stock the mostly heavily traded in Hong Kong. In comparison, the broader market closed 1.2% lower.

Citron Research founder Andrew Left said in an email to Dow Jones Newswires Thursday the firm had not spoken with executives at Evergrande before issuing the report, but said it had been looking into Evergrande for a few months. He added the firm had been publishing reports for 11 years. Mr. Left had yet to respond to further queries after Evergrande's statement rejecting Citron's claims.

The 57-page Citron Research report seen by Dow Jones Newswires alleged there were misstatements about Evergrande's investment property portfolio and land costs in its balance sheet. The report also claimed Evergrande Chairman Hui Ka Yan led the company to invest too heavily in "pet projects" such as sports teams and entertainment companies. Evergrande said it will respond to the allegations in more detail later Thursday.

Mr. Hui owns China's richest and most successful soccer club, Guangzhou Evergrande.

Citron also highlighted that Evergrande had been named by the Ministry of Finance for inaccurate financial statements in the past.

The finance ministry issued a statement in October last year identifying companies, including Evergrande, that had reported inaccurate financial figures in 2009 and paid insufficient taxes as a result. The government statement at the time added Evergrande had rectified the situation.

Evergrande earlier this month said that it is China's largest property developer by sales in terms of floor space. Sales in May rose 33% on year and 27% on the month to a record 10.37 billion yuan ($1.63 billion), it said. The developer also set a record for land prices in Guangzhou when it bought a piece of land in the city earlier this week for CNY32,968 per square meter, almost double the CNY17,933 per square meter paid by a rival developer for a parcel of land in the same area in 2011, local media reported.

According to its latest financial report, Evergrande had cash totaling CNY28.2 billion and assets worth CNY179.02 billion as of the end of December. Total borrowings as a percentage of total assets were 28.9%.

Write to Esther Fung at esther.fung@dowjones.com