SHANGHAI/BEIJING - Shanghai-based Focus Media Holding Ltd on Tuesday rebutted a report by US-based short-selling research firm Muddy Waters LLC, which claimed the Nasdaq-listed digital media advertiser had exaggerated the number of television screens in its advertising network.

A day earlier, Focus Media's shares tumbled 66 percent during intra-day trading and closed at $15.43 a share, down 39 percent, following the release of the Muddy Waters report.

The plunge wiped out $1.3 billion in market capitalization and its share price dived to the lowest point in 52 weeks.

Regarding Muddy Waters' claim that it had overstated its advertising network assets and deliberately overpaid for acquisitions, Focus Media said in a statement to the media on Tuesday that the accusation "is absolutely false, and in order to defend investors' interests, the company will pursue legal remedies".

Focus Media "maintains that the allegations set forth in the Muddy Waters' report misrepresent the information ... and denies the allegations entirely", it said on its website.

Jason Jiang, chairman of Focus Media, said on his personal micro blog on Tuesday that the company is in good condition, and he suggested the short-seller's claims should be subject to legal action.

Fosun International Ltd, Focus Media's largest shareholder as of July 19, said it will continue to invest in growth companies in an e-mailed statement on Tuesday, according to Bloomberg News.

Though it declined to comment on the report, Fosun International said it is studying Muddy Waters' report about Focus Media.

This is not the first time that Chinese overseas-listed companies have been targeted by short-sellers. Earlier in November, another firm, Citron Research, published two reports accusing Chinese Internet company Qihoo 360 Technology Co Ltd of accounting fraud.

"Citron's research report just shows the company has no understanding of the Chinese Internet market, and the data quoted in the report are full of errors," Zhou Hongyi, chairman and CEO of Qihoo 360, was quoted as saying by the Oriental Morning Post on Thursday.

"I understand this is financial maneuvering in a developed Western-style capital market, which aims to make money from it," added Zhou.

In June, Muddy Waters accused Canada-listed Sino-Forest Corp of overstating the value of its assets, which spurred a 74 percent drop in the timber owner's share price between June and August.

"Apparently, some foreign business institutions compiled such reports only to make profit from churning these companies' share price ups and downs," said Yin Xinmin, an economics professor at Fudan University.

Yin said that like markets in many other developed economies, there are regulatory loopholes in the US financial market, which was the culprit for the financial crisis in late 2008.

"I will advise the affected Chinese companies to look for legal means and other approaches to defend themselves," said Yin.

Li Guoqing, CEO of Nasdaq-lised E-Commerce China Dangdang Inc, said overseas-listed Chinese companies should regulate themselves to protect their reputation.

"It's true that there are some companies involved in accounting fraud ... The misconduct will hurt investors' trust after being exposed to the public and to regain trust takes a long time," Li said.