Shares of China's Sina Corp (SINA.O) fell as much as 12 percent on Monday on fears that a controversial corporate structure used by companies to list overseas or get foreign investment may draw scrutiny by the Chinese government.
Shares of other Chinese internet companies like Baidu (BIDU.O), Sohu.com (SOHU.O) and Netease.com (NTES.O) fell as much as 8 percent.
"The market is a little nervous about any policy driven developments that may affect the company's investors. Also, there is a rumor about potential government action on these microblogging services in China," Amit Dayal, analyst at Rodman & Renshaw LLC, told Reuters.
Reuters reported on September 18 that China Securities Regulatory Commission (CSRC) has asked China's State Council to take action against the structures known as Variable Interest Entities (VIEs).
Shares of Sina, which operates China's third-most visited website and the Twitter-like Weibo service, have fallen about 21 percent since the news came out.
VIEs let foreign investors control companies in banned sectors, such as the Internet, by drawing up a contractual agreement with a company that behaves like, but isn't, a direct equity stake.
Internet blogging websites like Sina got listed on Nasdaq through the VIE route.
"A lot of people felt it is a policy risk if the government is going to do anything ... so that's why the stock is down," analyst Tian X Hou at T.H. Capital Research said.
Sina shares were down 8 percent at $80.01 in midday trading on Nasdaq. They touched a low of $76.49 earlier in the day.
(Reporting by Rachana Khanzode in Bangalore; Editing by Maju Samuel)