Riding a Tiger without Being Eaten - RePub - Erasmus Universiteit ...

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after having been dismissed, they find a large portion of those leaving the fraud firms
move to management positions in other firms. In fact, some 15 per cent of CEOs, and
some 25 per cent of chairmen, receive promotions in those firms. Only a very small
portion of CEOs and chairmen receive legal or administrative penalties. They further
find that CEOs and chairmen in China, with a certain political background, are less
likely to receive legal or administrative penalties. In Korea, 290 company executives,
bank managers, bureaucrats and shareholders have been indicted for alleged public
fund-regulated fraud in the period following the Asian Crash. Daewoo (1997-98), was
the biggest corporate failure in Korea’s history, and sparked a domino effect leading
to numerous other corporate bankruptcies. The former CEO was arrested and charged
with accounting fraud and embezzlement after allegedly inflating Daewoo’s financial
statements by an estimated US $40 billion. Kamran and Goodwin (2006) studied
some 195 earnings restatements by Australian firms for the period between 1970 and
2003 and found that restatement firms have higher growth potential and are smaller
than non-restating firms from the same industry. They confirm findings from other
studies mentioned above – restatements are generally negatively associated with
market value.
Coffee, in a working paper entitled, ‘A Theory of Corporate Scandals: Why the US and
Europe Differ’ (2005), theorizes that differences in the structure of share ownership
account for differences in corporate scandals, both in terms of the nature of the
fraud, the identity of the perpetrators, and the seeming disparity in the number of
scandals at any given time. In dispersed ownership systems, corporate managers
tend to be the rogues of the story, while in concentrated ownership systems, it is
the controlling shareholders who play the corresponding role. Coffee cites Parmalat
(Italy), and Hollinger (Canada), as primary examples. Corporate managers tend to
engage in earnings manipulation, while controlling shareholders tend to exploit
the private benefits of control. Ferrarini and Guidici (2005) attribute the litigation
proceedings in the Parmalat case to be a result of significant differences between law
enforcement in Italy as compared to the United States.
1.3.8 restatements witH sPeciFic academic attention
The highest-profile corporate scandals, Enron and WorldCom, have been addressed
by academics on numerous occasions from a variety of angles. The Elsevier academic
search engine Scopus produces 442 scientific articles with Enron in the title field
(December 2008); WorldCom produces 36 hits.