Corporate Scandals and Regulation:
Appendix on Data Collection for Historical Time-Series
from 1800 to 2015
Luzi Hail
The Wharton School
University of Pennsylvania
Ahmed Tahoun
London Business School
Clare Wang
Kellogg School of Management
Northwestern University
April 2017
Abstract
In this appendix, we provide the following for each of the 26 sample countries in Hail, Tahoun,
and Wang (2017), Corporate Scandals and Regulation, Working paper: a brief overview of the
country’s historical background and major developments affecting the regulatory environment,
country-specific details regarding our data collection procedure (e.g., time period covered,
newspaper selection for keyword search, data sources, keywords for search of electronic archives
in local language, secondary literature, local country experts, etc.), as well as descriptive
information on the episodes of corporate scandals and (accounting) regulation that we identified
(including a few illustrative examples for each country). When data is available, we also plot the
time-series of media mentions of the terms “scandal” and “regulator” (or the local equivalents) in
the business press, and tabulate the number of different types of corporate scandals and
regulations by decade over the 1800 to 2015 period.
!
Send correspondence to Luzi Hail, The Wharton School, University of Pennsylvania, 1319 Steinberg Hall-Dietrich Hall, 3620
Locust Walk, Philadelphia, PA 19104-6365. Telephone: (215) 898-8205. E-mail: [email protected]
!
APPENDIX
CORPORATE SCANDALS AND REGULATION
Table of Contents
A1.!
Austria................................................................................................................................. 4!
A1.1.!
Overview ....................................................................................................................................4!
A1.2.!
Data Collection ..........................................................................................................................4!
A1.3.!
Data Description ........................................................................................................................5!
A2.!
Australia............................................................................................................................ 10!
A2.1.!
Overview ..................................................................................................................................10!
A2.2.!
Data Collection ........................................................................................................................11!
A2.3.!
Data Description ......................................................................................................................12!
A3.!
Belgium ............................................................................................................................. 17!
Overview ..................................................................................................................................17!
Data Collection ........................................................................................................................18!
Data Description ......................................................................................................................18!
A3.1.!
A3.2.!
A3.3.!
A4.!
Brazil ................................................................................................................................. 24!
A4.1.!
Overview ..................................................................................................................................24!
A4.2.!
Data Collection ........................................................................................................................25!
A4.3.!
Data Description ......................................................................................................................25!
A5.!
Canada .............................................................................................................................. 31!
A5.1.!
Overview ..................................................................................................................................31!
A5.2.!
Data Collection ........................................................................................................................32!
A5.3.!
Data Description ......................................................................................................................33!
A6.!
People’s Republic of China ............................................................................................. 38!
A6.1.!
Overview ..................................................................................................................................38!
A6.2.!
Data Collection ........................................................................................................................39!
A6.3.!
Data Description ......................................................................................................................40!
A7.!
Denmark ........................................................................................................................... 45!
A7.1.!
Overview ..................................................................................................................................45!
A7.2.!
Data Collection ........................................................................................................................45!
A7.3.!
Data Description ......................................................................................................................46!
A8.!
Egypt ................................................................................................................................. 51!
Overview ..................................................................................................................................51!
Data Collection ........................................................................................................................52!
Data Description ......................................................................................................................53!
A8.1.!
A8.2.!
A8.3.!
A9.!
Finland .............................................................................................................................. 57!
A9.1.!
Overview ..................................................................................................................................57!
A9.2.!
Data Collection ........................................................................................................................57!
A9.3.!
Data Description ......................................................................................................................58!
1
APPENDIX
CORPORATE SCANDALS AND REGULATION
A10.! France................................................................................................................................ 63!
A10.1.! Overview ..................................................................................................................................63!
A10.2.! Data Collection ........................................................................................................................64!
A10.3.! Data Description ......................................................................................................................64!
A11.! Germany ........................................................................................................................... 70!
A11.1.! Overview ..................................................................................................................................70!
A11.2.! Data Collection ........................................................................................................................70!
A11.3.! Data Description ......................................................................................................................71!
A12.! Greece................................................................................................................................ 76!
A12.1.! Overview ..................................................................................................................................76!
A12.2.! Data Collection ........................................................................................................................77!
A12.3.! Data Description ......................................................................................................................77!
A13.! India .................................................................................................................................. 83!
A13.1.! Overview ..................................................................................................................................83!
A13.2.! Data Collection ........................................................................................................................84!
A13.3.! Data Description ......................................................................................................................84!
A14.! Israel .................................................................................................................................. 90!
A14.1.! Overview ..................................................................................................................................90!
A14.2.! Data Collection ........................................................................................................................90!
A14.3.! Data Description ......................................................................................................................91!
A15.! Italy.................................................................................................................................... 96!
A15.1.! Overview ..................................................................................................................................96!
A15.2.! Data Collection ........................................................................................................................97!
A15.3.! Data Description ......................................................................................................................97!
A16.! Japan ............................................................................................................................... 103!
A16.1.! Overview ................................................................................................................................103!
A16.2.! Data Collection ......................................................................................................................104!
A16.3.! Data Description ....................................................................................................................104!
A17.! Republic of Korea .......................................................................................................... 110!
A17.1.! Overview ................................................................................................................................110!
A17.2.! Data Collection ......................................................................................................................111!
A17.3.! Data Description ....................................................................................................................111!
A18.! Netherlands..................................................................................................................... 117!
A18.1.! Overview ................................................................................................................................117!
A18.2.! Data Collection ......................................................................................................................117!
A18.3.! Data Description ....................................................................................................................118!
2
APPENDIX
CORPORATE SCANDALS AND REGULATION
A19.! Poland ............................................................................................................................. 122!
A19.1.! Overview ................................................................................................................................122!
A19.2.! Data Collection ......................................................................................................................122!
A19.3.! Data Description ....................................................................................................................123!
A20.! Portugal........................................................................................................................... 128!
A20.1.! Overview ................................................................................................................................128!
A20.2.! Data Collection ......................................................................................................................129!
A20.3.! Data Description ....................................................................................................................129!
A21.! South Africa.................................................................................................................... 133!
A21.1.! Overview ................................................................................................................................133!
A21.2.! Data Collection ......................................................................................................................134!
A21.3.! Data Description ....................................................................................................................135!
A22.! Spain ................................................................................................................................ 140!
A22.1.! Overview ................................................................................................................................140!
A22.2.! Data Collection ......................................................................................................................141!
A22.3.! Data Description ....................................................................................................................141!
A23.! Sweden ............................................................................................................................ 147!
A23.1.! Overview ................................................................................................................................147!
A23.2.! Data Collection ......................................................................................................................148!
A23.3.! Data Description ....................................................................................................................149!
A24.! Switzerland ..................................................................................................................... 154!
A24.1.! Overview ................................................................................................................................154!
A24.2.! Data Collection ......................................................................................................................155!
A24.3.! Data Description ....................................................................................................................155!
A25.! United Kingdom ............................................................................................................. 161!
A25.1.! Overview ................................................................................................................................161!
A25.2.! Data Collection ......................................................................................................................162!
A25.3.! Data Description ....................................................................................................................163!
A26.! United States of America ............................................................................................... 168!
A26.1.! Overview ................................................................................................................................168!
A26.2.! Data Collection ......................................................................................................................169!
A26.3.! Data Description ....................................................................................................................170!
3
APPENDIX
A1.!
CORPORATE SCANDALS AND REGULATION
Austria
A1.1.! Overview
The history of Austria and Germany is closely intertwined. Austria headed the German
Empire until ceding control of Prussia to Napoleonic France in 1806, at which time the ruling
Habsburg Monarchy founded the Austrian Empire. The Congress of Vienna (1815) led to the
creation of the German Confederation, encompassing Prussia and the Austrian Empire. The
Confederation was ultimately dissolved following a failed attempt to establish a unified German
state and a Prussian victory over Austria in the war of 1866. The Empire of Austria and the
Kingdom of Hungary then formed the Austrian-Hungarian Dual Monarchy, which lasted until
1918 after its defeat in World War I. The newly formed Republic of Austria was de facto
replaced by a fascist dictatorship in 1934, and annexed by Nazi Germany in 1938. Following
World War II, the country remained under U.S., British, French, and Soviet control until it
regained independence in 1955. In 1995, Austria joined the European Community (EC).
In the early 1800s, Austria had great influence on the legal treatment of accounting and
financial reporting among German speaking territories. In 1852 a new law allowed the creation
of limited liability companies with governmental approval, and in 1863 the Austrian General
Commercial Code followed. The code remained in place until the end of the First Republic. In
1874, it was amended to require stock companies to establish a reserve fund and profit and loss
accounts. Following the country’s annexation in 1938, the German company law was adopted
and remained in effect until the Austrian Company Law took its place in 1965 (but which
retained most of the previous contents). In anticipation of joining the EC, Austria began
harmonizing its accounting regulations with 4th and 7th EEC Directives in 1982. This process
culminated in the Financial Reporting Act of 1990, which consolidated various existing
accounting regulations into a single act.
A1.2.! Data Collection
We start our data collection in 1800 with digitized issues of the Wiener Zeitung, one of the
oldest and most famous newspapers in Europe (https://en.wikipedia.org/wiki/Wiener_Zeitung).
From 1848 on, we complement this outlet with Die Presse/Neue Freie Presse, another of the
leading Austrian daily papers (https://en.wikipedia.org/wiki/Die_Presse) for political and
4
APPENDIX
CORPORATE SCANDALS AND REGULATION
economic news. The archive allows for keyword searches, but when using two or more terms in
a combined search (e.g., “accounting” and “scandal”), it only returns an entire issue containing
these words rather than individual articles. Thus, the identified issue of the newspaper has to be
inspected in detail. We identified several scandals using this approach.
In the post-war period, the above newspaper archives were not accessible due to copyright
reasons (except for the online archive of Die Presse over the last 15 years). However, we used
the Austria Press Agency APA as an alternative source. The APA archive provides fully
searchable access to the entire content of daily newspapers, weekly magazines, and other print
outlets (including Wiener Zeitung and Die Presse). We only included scandals for which there
were multiple mentions in the newspaper as well as scandals identified from secondary sources.
In addition, we relied on a survey of secondary literature and on experts’ input in the area of
regulation. Table A1.1 provides additional details on the data collection procedure.
A1.3.! Data Description
In Figure A1.1 we graphically plot the mentions of “Scandal” and “Regulator” in the
historical archives of the Wiener Zeitung and Die Presse/Neue Freie Presse (upper panel) as well
as the Austria Press Agency APA (lower panel). We break the time series into two parts, because
the data sources are not necessarily compatible with each other. We used the German translations
of our broad search terms as well as some terms that capture the same underlying construct for
the analysis. In the upper panel, covering the years 1800 to 1939, the mentions of scandal
outweigh the mentions of regulators, and we observe several spikes (e.g., 1847, 1869 to 1872,
and 1914). The correlation is 72%. In the lower panel, covering the post-war years, the level of
media mentions is substantially higher, with “Scandal” continuing to outpace “Regulator”. The
correlation between the two terms is extremely high and exceeds 93%.
Table A1.2 reports descriptive statistics on the incidents of corporate scandals and
accounting regulation by decade identified for Austria. The data covers the period 1800 to 2015
(without 1940 to 1954). We were able to identify 44 corporate scandals and 32 regulatory acts.
While there was only a handful of accounting scandals reported in the press in the second half of
the 19th century, the majority occurred from 1980 onwards. The regulatory activity shows a
similar pattern with 10 regulatory acts before 1940, and 22 in the last 25 years. The latter period
coincided with the country-specific implementation of several supranational directives and laws.
5
APPENDIX
CORPORATE SCANDALS AND REGULATION
FIGURE A1.1
Media Mentions of the Terms “Scandal” and “Regulator” from 1800 to 2015 in Austria
2..(
9:#';#*(
<"=>*#+&$(
5..(
!"#$%&'()&$$"*#+,&'%37..(+&(6.34
./012
37..(+&(3050
./130
6..(
3..(
.(
37..(
373.(
376.(
9:#';#*(
375.(
372.(
374.(
378.(
371.(
377.(
370.(
30..(
303.(
306.(
305.(
302.(
<"=>*#+&$(
8?...(
!"#$%&'()&$$"*#+,&'%3044(+&(6.34
./043
301.(+&(6.34
./054
2?...(
6?...(
.(
3044(
3084(
3014(
3074(
3004(
6..4(
6.34(
The figure plots the yearly number of incidents the terms “scandal” and “regulator” (or the local equivalents) are
mentioned in the business press. We plot the results from searching the Austrian newspapers Wiener Zeitung and
Die Presse/Neue Freie Presse over the period 1800 to 1939 (upper panel) as well as the Austria Press Agency APA
over the period 1955 to 2015 (lower panel). We use the terms “scandal” (“Skandal”, “Affäre”, or “Eklat”) and
“fraud” (“Betrug”, “Fälschung”, or “Manipulation”) together with “regulator” (“Gesetzgeber”, “Regulierer”,
“Regulierung”, or “Regulierungsbehörde”), “company law” (“Aktienrecht”), and “exchange supervisory body”
(“Börsenaufsicht” or “Börsenaufsichtsbehörde”). We also indicate the contemporaneous Pearson correlation
coefficients between the two time-series over the entire period as well as over various sub-periods.
6
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A1.1
Overview of Data Collection Procedure in Austria
1. Earliest year of data collection and time period coverage:
Coverage: 1800 to 2015 (without 1940 to 1954)
Start date: January 1, 1800
2. Data sources, time period used for search, and data accessibility:
-! Wiener Zeitung* (1800 to 1847; 1908 to 1913; 1919 to 1932); online archive through library (E):
http://www.theeuropeanlibrary.org or http://anno.onb.ac.at/
-! Die Presse*/Neue Freie Presse (1848 to 1939; 2001 to 2015); online archive through library (E):
http://www.theeuropeanlibrary.org or http://anno.onb.ac.at/; and online archive ($; E): http://diepresse.com
-! Austria Press Agency APA (1955 to 2015); online archive ($; E): http://aom.apa.at
3. Key search terms and translations into local language (main terms only):
Scandal: Skandal, Affäre, Eklat Veruntreuung, Malversation, Defraudation (historic term), Krida, Unterschleife
(historic term)
Accounting scandal/fraud: Bilanzskandal, Bilanzfälschung, Bilanzbetrug, Bilanzdelikt, Bilanzverschleierung,
Bilanzmanipulation, Bücherfälschung
Earnings management: Ergebnissteuerung, Ergebnismanipulation, Bilanzpolitik, Bilanzkosmetik, Bilanztricks,
Gewinnsteuerung, Gewinnmanipulation, Scheingewinn
Regulator: Regulierer, Regulierungsbehörde, Behörde, Börsenaufsicht, Börsenaufsichtsbehörde
Accounting regulation: Bilanzierungsvorschriften, Rechnungslegungsvorschrift, Rechnungslegungsnorm,
Buchhaltungsvorschriften, Bilanzreform, Rechnungslegungsregel
Securities regulation/law: Wertpapierregulierung, Wertpapierrecht, Handelsrecht, Börsenrecht, Aktienrecht,
Kapitalmarktrecht, Aktiengesetz, Börsenordnung, Aktiennovelle, Unternehmensgesetz
4. Special remarks about data collection:
-! Until 1914, the data collection also included the Austrian Crown Lands (e.g., Kingdom of Hungary, Croatia,
Slovenia).
-! No suitable newspaper coverage during World War II.
-! APA newspaper coverage starts in 1955.
-! Boolean search of individual articles with combined terms (e.g. “scandal” and “regulator”) was only available
from 1955 onwards.
5. Secondary literature (main resources):
Green, A. 2013. History and Survey of Accountancy. Routledge: London/New York.
Leuz, C., D. Pfaff, and A. Hopwood (eds.). 2004. The Economics and Politics of Accounting: International
Perspectives on Research Trends, Policy, and Practice. Oxford University Press: Oxford.
Nowotny, C., and E. Gruber. 1993. Austria. European Accounting Review 2: 292–297.
Peemöller, V., and S. Hofmann. 2005. Bilanzskandale: Delikte und Gegenmaßnahmen. Erich Schmidt Verlag:
Berlin.
Wagenhofer, A. 2015. Bilanzierung und Bilanzanalyse. Linde Verlag: Vienna.
6. Research assistant (RA) and local country expert (CE):
CE: Professor Alfred Wagenhofer, University of Graz
RA: Manuel Engelmann, University of Graz
(Continued)
7
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A1.1—Continued
7. Examples of corporate scandals:
Escomptebank
Near accounting scandal: Several managers embezzled money of the bank and
Niederösterreich (1884)
used it for gambling on the stock market; to veil their losses, they manipulated the
cashbook of the bank.
Tann (1990)
Accounting scandal: To prevent bankruptcy and ensure employee salaries,
management falsified the company’s inventory lists and accounts receivables.
Burgtheater (2014);
Accounting scandal: Manipulation of liquidity by paying off inexistent bills and
recording large cash deposits just before the end of the fiscal period.
8. Examples of accounting regulation:
General Civil Code
Accounting regulation: Contains regulations on the distribution of earnings,
(1812)
requires companies to keep books, and entitles investors to demand annual financial
statement information.
Limited Liability
Accounting regulation: Adaptation of the German Limited Liability Companies Act
Companies Act (1906);
of 1892, which, among other things, included specific rules for accounting and the
determination and appropriation of profits.
Financial Reporting Act
Supranational regulation: Partial implementation of the 4th and 7th EC Directives
(1990)
that introduced the “true and fair view” principle, the requirement to prepare
financial statement notes, and separate disclosure and auditing rules for small and
large corporations.
The table provides general information on the time period, data sources, search terms, and secondary literature used
in the data collection. An asterisk (*) indicates a premier (business) newspaper outlet in a country; a dollar sign ($)
indicates that the electronic archive does not offer free access, but needs a subscription; E stands for electronic
archive that is accessible through key word search. The table also lists a few illustrative examples of corporate
scandals and accounting regulations identified in the search.
8
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A1.2
Incidents of Corporate Scandals and Accounting Regulation in Austria by Decade
Corporate Scandals
Decade
1800
1810
1820
1830
1840
1850
1860
1870
1880
1890
1900
1910
1920
1930
1940
1950
1960
1970
1980
1990
2000
2010
Total
Accounting
0
0
0
0
0
0
1
1
0
1
1
0
0
0
n.a.
0
0
0
1
3
8
4
20
Near
Accounting
0
0
0
0
0
0
0
0
1
0
1
0
0
0
n.a.
0
0
0
1
1
1
1
6
Accounting Regulation
Other
Total
0
0
0
0
0
0
0
1
0
0
1
0
0
1
n.a.
0
1
1
7
3
2
1
18
0
0
0
0
0
0
1
2
1
1
3
0
0
1
n.a.
0
1
1
9
7
11
6
44
Accounting
0
1
0
0
0
0
1
1
0
1
2
0
0
0
n.a.
0
1
0
0
1
4
0
12
Other
0
0
0
0
0
1
0
0
0
1
0
0
1
0
n.a.
0
0
1
3
3
2
0
12
Supranational
0
0
0
0
0
0
0
0
0
0
0
0
0
1
n.a.
0
0
0
0
3
3
1
8
Total
0
1
0
0
0
1
1
1
0
2
2
0
1
1
n.a.
0
1
1
3
7
9
1
32
The table reports the number of corporate scandals and accounting regulations by decade and type for Austria over
the 1800 to 2015 period (N = 201 years). For the empirical analyses, we classify the corporate scandals that we
identified in the data collection as either “accounting scandal”, “near accounting scandal”, or “other scandal” and the
regulatory actions as either “accounting regulation”, “other regulation”, or “supranational regulation.” See Section 2
of the main text for details. If feasible, we measure corporate scandals in the year they are first covered in the
financial press, and accounting regulation in the year it is enacted.
9
APPENDIX
A2.!
CORPORATE SCANDALS AND REGULATION
Australia
A2.1.! Overview
The first European settlement of Australia took place by the British in 1788 at Port Jackson
(modern Sydney) in the colony of New South Wales. The population grew steadily and by the
1850s, five more Crown colonies had been established. The discovery of gold led to gold rushes
in many parts of Australia and intensified the push for independence from the United Kingdom.
In 1901, the Commonwealth of Australia became a dominion of the British Empire, and the
construction on the future capital Canberra began. Australia adopted the Statute of Westminster
granting it full sovereignty from the British Empire in 1942 (backdating the adoption to 1939).
The country fought among the Western allies in both world wars, and turned to the United States
as a new military ally after the end of World War II. Prior to the war, the federal government
only played a marginal role in the Australian economy. The states levied most of the taxes, and
Australia’s international trade was dictated by its relationship with the British Empire. Wartime
measures and the expanded wartime economy shifted some of the power toward the federal
government. After 1945, a period of rapid economic growth and prosperity began. The economic
boom ended with the “stagflation” in the early 1970s, caused primarily by the international oil
crisis, Britain’s entry into the European Economic Community (EEC), and growing competition
in Australia’s traditional export markets. It followed a period of liberalization and deregulation
of the Australian economy for much of the 1980s and 1990s. Through these reforms, Australia
became one of the world’s most open economies and saw over two decades of economic growth,
coupled with low inflation and relatively low unemployment.
Accounting standards in Australia were initially developed by the professional accounting
bodies, and were enforceable under their codes of ethics. The Adelaide Society of Accountants
founded in 1886 was the first of its kind, but more followed in other states and territories. By
1910, no less than 13 accounting bodies were in existence, and this co-existence of several
organizations involved in accounting practice continues until today. In 1946, the Institute of
Chartered Accountants in Australia (ICAA) issued their recommendations on accounting
standards, but their impact on accounting practice remained limited. One problem of the
Australian system of self-regulation was the lack of consistent enforcement and legislative
power. At the time, each state was responsible for its own corporate law, and there did not exist a
10
APPENDIX
CORPORATE SCANDALS AND REGULATION
common approach to ensure compliance with the various recommendations. Companies from
other states were essentially treated as foreign companies. In 1966, the professional bodies
jointly formed the Australian Accounting Research Foundation (AARF). One of the primary
functions of the AARF was to propose generally accepted accounting principles through its
Accounting Standards Board (AcSB). These standards would be confirmed and then required
compliance by the members. Amid ongoing issues with the implementation and enforcement of
the standards, the government in 1984 created the Accounting Standards Review Board (ASRB)
to approve and oversee the standard setting process. This body was soon replaced by the
Australian Accounting Standards Board (AASB), established under the Securities Commission
Act of 1989. This was a federal law that did not require individual state approval. The regulatory
changes also prompted the government to establish the Financial Reporting Council (FRC) that
was responsible for overseeing the effectiveness of the financial reporting framework in
Australia. A few years later, the Australian Securities and Investments Commission (ASIC) was
added as an independent enforcement body. Following the example of the European Union, the
AASB in 2002 issued a statement that Australia would adopt International Financial Reporting
Standards (IFRS) for publicly listed companies beginning in 2005.
A2.2.! Data Collection
We start our data collection in 1831 with the first digitized issue of the Sydney Morning
Herald (originally known as Sydney Herald), the oldest continuously published newspaper in
Australia (https://en.wikipedia.org/wiki/The_Sydney_Morning_Herald). The electronic archive
allows for key word search, and we screened every article containing the search terms for
potential episodes of scandals that met our definition. We then conducted another search using
the company names and time-periods identified to assess the economic importance of the events.
We supplement these results with key word searches in the electronic archives of additional
Australian newspapers and secondary literature.
We relied on a detailed survey of the secondary literature for regulation. This procedure
allowed us to identify the major national laws and influential state/provincial laws pertaining to
company formation and accounting. We also considered the website of the Chartered
Accountants Australia and New Zealand (CA ANZ), the professional body of accountants in the
11
APPENDIX
CORPORATE SCANDALS AND REGULATION
two countries, and the website of the AASB in our search. Table A2.1 provides additional details
on the data collection procedure.
A2.3.! Data Description
In Figure A2.1 we graphically plot the mentions of “Scandal” and “Regulator” in the
historical archives of the Sydney Morning Herald. The time series covers the years 1831 to 2015.
We used the exact terms in the key word search (plus derivations like “scandalous” or
“regulatory”), regardless whether they appeared on the front page, in the headlines, or the body
of the article. Both time-series exhibit substantial volatility over time (note that in 1955 and
1996, we had to switch data providers). The mentions of “Regulator” peak in 1908, 1942, and
1988 and always outpace the mentions of “Scandal.” The mentions of scandals reach their
highest level in 1987 and 2011. The two terms move together with a correlation coefficient of
55% over the entire period. Before 1945, the correlation was even higher with 76% (compared to
47% after World War II).
Table A2.2 reports descriptive statistics on the incidents of corporate scandals and
accounting regulation by decade identified for Australia. The data covers the period 1831 to
2015. We could identify 75 corporate scandals and 31 regulatory acts. While there was an early
peak in scandals around 1900 and 1930, the numbers increased substantially after 1980. The
regulatory activity was more evenly distributed over time, but also reached higher levels over the
last 35 years of the sample period.
12
APPENDIX
CORPORATE SCANDALS AND REGULATION
FIGURE A2.1
Media Mentions of the Terms “Scandal” and “Regulator” from 1831 to 2015 in Australia
49...
:;#'<#*
=">?*#+&$
590..
!"#$%&'()&$$"*#+,&'%7647(+&(5.70
./010
7647(+&(7810
./234
59...
7813(+&(5.70
782.(+&(5.70
./35.
./136
790..
79...
0..
.
764.
761.
760.
763.
762.
766.
768.
78..
787.
785.
784.
781.
780.
783.
782.
786.
788.
5...
5.7.
The figure plots the yearly number of incidents the terms “scandal” (including the derivations “scandalous” and
“scandalously”) and “regulator” (including the derivations “regulation,” “regulatory,” and “regulate”) are mentioned
in the business press. We plot the results from searching the Australian newspaper Sydney Morning Herald
(originally Sydney Herald) over the period 1831 to 2015. Beginning in the years 1955 and 1996, we had to switch
databases used for the data collection. We also indicate the contemporaneous Pearson correlation coefficients
between the two time-series over the entire period as well as over various sub-periods.
13
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A2.1
Overview of Data Collection Procedure in Australia
1. Earliest year of data collection and time period coverage:
Coverage: 1831 to 2015
Start date: April 18, 1831
2. Data sources, time period used for search, and data accessibility:
-! Sydney Morning Herald (until 1841: Sydney Herald; 1831 to 1954); online archive through Trove from the
National Library of Australia (E): http://trove.nla.gov.au/newspaper/
-! Sydney Morning Herald (1955 to 1995); online newspaper archive ($; E): http://archives.smh.com.au
-! Sydney Morning Herald (1996 to 2015); online archive through Fairfax Media News Store (E):
http://newsstore.fairfax.com.au/apps/newsSearch.ac?sy=nstore
3. Key search terms (main terms only):
Scandal: scandal, fraud, misconduct, embezzlement, theft
Accounting scandal/fraud: accounting scandal, accounting fraud, corporate scandal, corporate fraud, financial
misconduct
Earnings management: earnings management, earnings manipulation, accounting manipulation, creative
accounting
Regulator: regulator, regulation, legislator, legislation, law, decree, order
Accounting regulation: accounting regulation, disclosure regulation, GAAP, generally accepted accounting
principles, accounting rules, bookkeeping regulation, bookkeeping rules
Securities regulation/law: securities regulation, securities law, financial markets oversight, company law
4. Special remarks about data collection:
-! The Trove archive used for the time-series analysis of media mentions does not allow for searches of exact
terms but also includes derivations of the same words (e.g., “scandalous” for “scandal”). Thus, for
consistency, we use these derivations for the entire key word search.
-! The search engine of the Sydney Morning Herald produces significantly fewer results in 1974 compared to
the adjacent years (for all search terms). Thus, to make the numbers comparable for the time-series analysis
of media mentions, we take the average of 1973 and 1975 for the year 1974 in the analyses.
-! We supplemented the search of the Sydney Morning Herald in the Trove and Fairfax Media archives with
searches of other Australian newspapers covered in these repositories (e.g., The Canberra Times, The West
Australian, The Age, etc.).
5. Secondary literature (main resources):
AICPA. 1975. Australia. In: International Practice Executive Committee (ed.). Professional Accounting in 30
Countries. American Institute of Certified Public Accountants: New York, NY: 25–47.
Anderson, R. 1998. Regulating corporate annual reports in Australia. Business and Economic History 27: 522–
534.
Birkett, W., and R. Walker. 1971. Response of the Australian accounting profession to company failure in the
1960s. Abacus 2: 97–136.
Carnegie, G., and B. O’Connell. 2011. Accounting scandals in Australia since the late 1980s. In: Jones M. (ed.).
Creative Accounting, Fraud and International Accounting Scandals. John Wiley & Sons: West Sussex, UK:
137–161.
Dean, G., and F. Clarke. 2011. Chapter 1: Australia. In: Previts, G., P. Walton, and P. Wolnizer (eds.). A Global
History of Accounting, Financial Reporting and Public Policy: Asia and Oceania. Emerald Group
Publishing: Bingley, UK: 1–34.
Gaffikin, M. 2006. Regulation: standardising accounting practice. Working paper, University of Wollongong.
Jones, M. 2011. Creative Accounting, Fraud and International Accounting Scandals. John Wiley & Sons: West
Sussex, UK.
Kavrar, O., and B. Yilmaz. 2017. Corporate collapses in Australia: case of Harris Scarfe. Journal of Economics,
Business and Management 5: 12–17.
Merrett, D. 2013. The Australian bank crashes of the 1890s revisited. Business History Review 87: 407–429.
6. Research assistant (RA) and local country expert (CE):
CE: Professor Graeme Dean, University of Sydney
RA: Christos Grambovas
(Continued)
14
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A2.1—Continued
7. Examples of corporate scandals:
Bank Collapses (1892)
Other scandal: A sharp economic downturn combined with high leverage ratios
and speculative if not fraudulent behaviour by the banks led to the collapse of most
Australian financial institutions (e.g., Mercantile Bank of Australia, Victorian
Mortgage and Deposit Bank, English and Australian Mortgage Bank, etc.). For
instance, the Mercantile Bank of Australia was using its own funds to bolster trade
and prices of its shares. At the same time, management misappropriated funds for
personal use. These were common practices in many banks.
“Bottom of the harbour” Near accounting scandal: This tax avoidance scheme was popular in Australia in
tax avoidance (1980)
the 1970s and became heavily scrutinized in 1980. The basic idea was simple. A
profitable firm would be stripped of its assets and profits before corporate income
taxes became due and the firm was left unable to pay. The firm would then be sent
to the “bottom of the harbour,” that is, transferred to someone with limited means
and interest in the business, which left the tax authorities in the same position as the
other unsecured creditors of the firm.
HIH Insurance (2001)
Accounting scandal: After its collapse, it was found that the insurance company had
overstated group profits for years by under-reserving its liabilities (i.e., the
provisions for future expected claims were recorded too low) and by engaging in
reinsurance contracts that gave the appearance to transfer risk to a third party when
in fact they did not. The firm also had reported too high a goodwill from
acquisitions (and even increased the amount over time) although an impairment
would have seemed more appropriate.
8. Examples of accounting regulation:
Adelaide Society of
Accounting regulation: The public accountants in South Australia joined forces to
Accountants
establish Australia’s first professional accounting body. The society had 19
(1886)
founding members who were interested in fostering the “importance of systematic
and correct bookkeeping” and the efficiency of those “engaged in accountancy and
auditing.”
Recommendations on
Accounting regulation: The Institute of Chartered Accountants in Australia
Accounting Principles
published their accounting recommendations. These recommendations were non(1946)
binding accounting principles for its members that followed years during which
Australian accounting practice was characterized by “both considerable
unwillingness to meet the legal obligations for disclosure and in fact a degree of
disregard of the law.”
Australian Securities and Other regulation: The law established the Australian Securities and Investments
Investments
Commission (ASIC), which is an independent government body overseeing
Commission Act
Australian public and private companies and financial markets. It also granted the
(2001)
ASIC investigative and enforcement powers to ensure compliance with extant and
future regulation.
The table provides general information on the time period, data sources, search terms, and secondary literature used
in the data collection. An asterisk (*) indicates a premier (business) newspaper outlet in a country; a dollar sign ($)
indicates that the electronic archive does not offer free access, but needs a subscription; E stands for electronic
archive that is accessible through key word search. The table also lists a few illustrative examples of corporate
scandals and accounting regulations identified in the search.
15
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A2.2
Incidents of Corporate Scandals and Accounting Regulation in Australia by Decade
Corporate Scandals
Decade
1830
1840
1850
1860
1870
1880
1890
1900
1910
1920
1930
1940
1950
1960
1970
1980
1990
2000
2010
Total
Accounting
0
0
0
0
3
0
3
1
0
0
3
1
1
3
3
2
5
8
3
36
Near
Accounting
0
0
0
0
0
3
0
1
0
0
3
0
0
0
1
2
2
3
1
16
Accounting Regulation
Other
Total
0
2
0
1
0
0
2
2
0
0
0
0
0
1
0
3
2
6
4
23
0
2
0
1
3
3
5
4
0
0
6
1
1
4
4
7
9
17
8
75
Accounting
0
0
0
0
0
1
1
0
0
1
1
1
0
0
0
3
3
3
3
17
Other
0
0
1
1
0
0
2
0
1
0
0
0
1
0
1
2
2
3
0
14
Supranational
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Total
0
0
1
1
0
1
3
0
1
1
1
1
1
0
1
5
5
6
3
31
The table reports the number of corporate scandals and accounting regulations by decade and type for Australia over
the 1831 to 2015 period (N = 185 years). For the empirical analyses, we classify the corporate scandals that we
identified in the data collection as either “accounting scandal”, “near accounting scandal”, or “other scandal” and the
regulatory actions as either “accounting regulation”, “other regulation”, or “supranational regulation.” See Section 2
of the main text for details. If feasible, we measure corporate scandals in the year they are first covered in the
financial press, and accounting regulation in the year it is enacted.
16
APPENDIX
A3.!
CORPORATE SCANDALS AND REGULATION
Belgium
A3.1.! Overview
Prior to its annexation by the French in 1795, Belgium existed as a semi-independent area
belonging to the Catholic church. In 1807, Napoleon brought the French Commercial Code to
Belgium, and along with it the statute of the share-issuing limited liability company. After the
defeat of Napoleon in 1814, the Belgian provinces were awarded to the Kingdom of the
Netherlands. The Belgian revolution from 1830 to 1839 resulted in the three nations of modernday Belgium, the Netherlands, and Luxembourg. Amendments to the Commercial Code in 1873
were influenced by French, British, and German law, and eliminated the need for governmental
approval of a company’s constitution. The law also strengthened the protection of shareholders
and third parties. The act of 1881, for the first time, imposed criminal penalties on those who
fraudulently falsified financial statements (but gave little guidance on how to properly enforce
these rules). This code was further amended in 1886 to improve deficient financial reporting and
strengthen the role of the auditor. A law in 1913 introduced a system of corporate income taxes,
which derived taxable income from the reported profit numbers of the firm. Dividend taxes were
introduced in 1920. Even though – in theory – there existed some basic measures to protect
investors in Belgian law, shareholders were often regarded as largely unprotected in practice
before the 1930s (much less so than in other European countries like England or France), and
accounting practice was very lax, giving the companies much freedom in what to include in the
financial statements and what valuation principles to use.
A unique feature of Belgian accounting regulation is the prominent role played by trade
unions. After World War II, a law established the workers’ council, comprising in equal parts
employees and employers of the firm. These councils had the right to receive and appeal
accounting information. The royal decree of 1973 further strengthened the position of the
workers’ council, as it aimed to provide employees with a “clear and correct picture” of the
economic and financial situation of the firm. Belgium was a founding member of the European
Economic Community (EEC) in 1957. In 1975, a new accounting law started the harmonization
process of Belgian financial reporting regulation with EEC directives. The law provided the basis
for subsequent Royal Decrees on valuation rules, the format and content of a uniform chart of
accounts, and the first legal obligation to prepare consolidated group accounts. In 1990, the
17
APPENDIX
CORPORATE SCANDALS AND REGULATION
Seventh EEC Directive on consolidated accounts was implemented. In 2002, Belgium together
with the other European Union (EU) countries decided to require firms listed on EU-regulated
markets to prepare financial statements in accordance with International Financial Reporting
Standards (IFRS) from the financial year 2005 onward.
A3.2.! Data Collection
We start our data collection in 1831 with the first issue of L’Independence Belge, a French
language newspaper that ran until 1940. After 1941, we used three Dutch language outlets: Het
laatste Nieuws (1941-1950; https://en.wikipedia.org/wiki/Het_Laatste_Nieuws), the regional
newspaper Het Belang van Limburg (1951-1988) which was the only outlet available with
electronic archive for the period, and today’s premier business newspaper De Tijd (1988-2015;
https://en.wikipedia.org/wiki/De_Tijd). We evaluate the materiality of the scandals by checking
whether they were mentioned multiple times in the media or identified from secondary sources.
For regulation, we relied on a detailed survey of secondary literature. This process allowed
us to identify the major national laws pertaining to commerce and, in later years, the steps taken
by the Belgian government to implement the various EEC/EU accounting directives. We focus
on acts and amendments that significantly affected corporate governance and financial reporting
in our search. Table A3.1 provides additional details on the data collection procedure.
A3.3.! Data Description
In Figure A3.1 we graphically plot the mentions of “Scandal” and “Regulator” in the
historical archives of L’Indépendance Belge over the period 1831 to 1939 (upper panel) as well
as the three newspapers Het Laatste Nieuws, Het Belang van Limburg, and De Tijd over the
period 1946 to 2015 (lower panel). We used the French/Dutch translations of our broad search
terms as well as some terms that capture the same underlying construct for the analysis. The
media mentions of the two terms are highly volatile, and the correlation coefficient between the
two time-series is 60% in the first half of the sample (until 1939), and 65% thereafter. The term
“Scandal” generally outpaces “Regulator,” except in the years following World War II and in the
most recent period.
Table A3.2 reports descriptive statistics on the incidents of corporate scandals and
accounting regulation by decade identified for Belgium. The data covers the period 1831 to
18
APPENDIX
CORPORATE SCANDALS AND REGULATION
2015. We could identify 48 corporate scandals and 44 regulatory acts. Due to a lack of specific
and rigid regulation of financial reporting before the 1930s, we do not observe many accounting
scandals (or corporate scandals in general) in the early years. At the time, companies had lots of
freedom in choosing how and what to report on the balance sheet or income statement (which
sometimes did not even include a profit figure). Thus, a clear notion of compliance or noncompliance with the law was still elusive. While there was an early peak in accounting scandals
in the 1930s, the number reached a higher level from the 1970s onward. This increase in the later
sample period coincides with extended regulatory activity after 1970. The last 25 years also
coincided with the country-specific implementation of several supranational directives and laws.
19
APPENDIX
CORPORATE SCANDALS AND REGULATION
FIGURE A3.1
Media Mentions of the Terms “Scandal” and “Regulator” from 1831 to 2015 in Belgium
1?...
9:#';#*
<"=>*#+&$
5..
!"#$%&'()&$$"*#+,&'%1581(+&(2.13
./012
1581(+&(1484
./345
6..
7..
2..
.
158.
157.
153.
156.
150.
155.
154.
14..
141.
142.
148.
147.
5..
9:#';#*
<"=>*#+&$
6..
!"#$%&'()&$$"*#+,&'%1476(+&(2.13
./670
140.(+&(2.13
./670
7..
2..
.
1473
1433
1463
1403
1453
1443
2..3
2.13
The figure plots the yearly number of incidents the terms “scandal” and “regulator” (or the local equivalents) are
mentioned in the business press. We plot the results from searching the Belgian newspaper L’Indépendance Belge
(in French) over the period 1831 to 1939 (upper panel) as well as the three Belgian newspapers (in Dutch) Het
Laatste Nieuws (1946-1950), Het Belang van Limburg (1951-1987), and De Tijd (1988-2015) over the period 1946
to 2015 (lower panel). The newspapers were under censorship during World War II (1940 to 1945). We use the
terms “scandal” (French: “scandale” or “affaire”; Dutch: “schandaal” or “zwendel”) and “regulator” (French:
“régulateur” or “législateur”; Dutch: “toezichthouder”, “regelgever”, “regulateur”, or “wetgever”). We also indicate
the contemporaneous Pearson correlation coefficients between the two time-series over the entire period as well as
over various sub-periods.
20
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A3.1
Overview of Data Collection Procedure in Belgium
1. Earliest year of data collection and time period coverage:
Coverage: 1831 to 2015 (without 1940 to 1945)
Start date: February 6, 1831
2. Data sources, time period used for search, and data accessibility:
-! L’Indépendance Belge (1831 to 1940); digital archive with onsite access at Royal Belgian Library (E):
http://belgica.kbr.be/fr/coll/jour/jourJb555_fr.html
-! Het Laatste Nieuws (1941 to 1950); digital archive with onsite access at Royal Belgian Library (E):
http://belgica.kbr.be/fr/coll/jour/jourJb555_fr.html
-! Het Belang van Limburg (1951 to 1987); digital archive with onsite access at the editorial office of the
newspaper (E)
-! De Tijd* (1988 to 2015); online newspaper archive ($; E): http://www.tijd.be/search/
3. Key search terms and translations into local language (main terms only):
Scandal: French: scandale, affaire; Dutch: schandaal, zwendel
Accounting scandal/fraud: French: scandale comptable, affaire comptable, fraude comptable, escroquerie
comptable, malversation comptable, scandale d’enterprise, affaire financière;
Dutch: boekhoudschandaal, boekhoudzwendel, boekhoudfraude, bedrijfsschandaal
Earnings management: French: manipulation des comptes, trucage dans les comptes, tripatrouillage comptable,
inconduite financière, practique financière illégale, gestion du résultats comptable, gestion des bénéfices,
maquillage des chiffres, acrobatie comptable, artifice comptable, jonglerie comptable;
Dutch: vervals(ch)ing van geschriften, geknoei AND (boekhouding OR boeken OR administratie OR
kasboeken), financiele fraude, winst management, manipuleren winsten, creatief boekhouden
Regulator: French: régulateur, législateur, réforme, autorité de surveillance, autorité des marches financiers;
Dutch: toezichthouder, regelgever, regulateur, controleur, wetgever
Accounting regulation: French: réglementation comptable, loi comptable, règle comptable, norme comptable,
réglementation sur la divulgation, divulgation réglementaire, autorisation de divulgation;
Dutch: (boekhoud OR kasboek OR accountancy) AND (wetgeving OR legislatie), mededingswetgeving
Securities regulation/law: French: réglementation des marches financiers, financieres hors de la bourse,
réglementation des bourses de valeurs, réglementation des valeurs mobilières;
Dutch: aandelen wetgeving, effecten wetgeving, aandelen legislatie, effecten legislatie
4. Special remarks about data collection:
-! No suitable newspaper coverage during World War II.
-! The Dutch language spoken in Belgium differs slightly from the Dutch spoken in the Netherlands. It has
some French influences. Thus, some of the translations might differ slightly from the Netherlands.
5. Secondary literature (main resources):
Buyst, E., and I. Maes. 2008. Central banking in 19th century Belgium: Was the NBB a lender of last resort?
Working paper. University of Leuven.
De Rongé, Y., E. Henrion, and C. Vael. 1993. Belgium. European Accounting Review 2: 298–311.
Jorissen, A. 2003. Chapter 3: Belgium. In: Alexander, D., and S. Archer (eds.). European Accounting Guide
(5th ed.). Aspen Publishers: New York, NY: 3.01–3.75.
Jorissen, A, and H. Block. 1995. Belgium: individual accounts. In: Ordelheide, D., and KPMG (eds.).
Transnational Accounting. Macmillan: London, UK: 379–492.
Jorissen, A, and P. Stabel. 2010. Chapter 1: Belgium. In: Previts, G., P. Walton, and P. Wolnizer (eds.). A
Global History of Accounting, Financial Reporting and Public Policy: Europe. Emerald Group Publishing:
Bingley, UK: 1–35.
Moortgat, L., J. Annaert, and M. Deloof. 2016. Investor protection, taxation and dividend policy: long-run
evidence, 1838-2012. Working paper. University of Antwerp.
Van Overfelt, W., M. Deloof, and A. Vanstraelen. 2010. Determinants of corporate financial disclosure in an
unregulated environment: evidence from the early 20th century. European Accounting Review 19: 7–34.
6. Research assistant (RA) and local country expert (CE):
RA: Stefan Romeijn, Tilburg University;
CE: Professor Marc Deloof, University of Antwerp
Joris de Kok, Wageningen University
(Continued)
21
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A3.1—Continued
7. Examples of corporate scandals:
La Belgique Prévoyante
Accounting scandal: The life insurance company presented falsified financial
(1936)
statements for multiple years in a row, effectively turning economic losses into
reported profits. Consequently, it paid dividends to shareholders even though no
profits were earned.
Agusta-Dassault Case
Other scandal: The Italian-French aviation groups Agusta and Dassault had bribed
(1993)
numerous Belgian officials (as early as 1988) to secure an order for delivery of a
jointly developed helicopter.
Lernout & Hauspie
Accounting scandal: After multiple large acquisitions, the Belgian tech company
(2000)
came under suspicion of accounting manipulation. A Wall Street Journal article
reported that most of the company’s Korean customers did not actually exist, and
shortly thereafter numerous accounting irregularities were uncovered and led to an
investigation by the U.S. SEC.
8. Examples of accounting regulation:
Ministerial Order
Accounting regulation: The order instituted initial checks for capital adequacy,
(1841)
profitability, and shareholder protection. It also considered the compulsory
requirement of preparing a balance sheet, but no sanctions were applied in case of
non-compliance. The balance sheet had to be discussed during the general meeting
and was available to the shareholders of the firm.
Income Tax Law
Other regulation: The law introduced a system of corporate income tax which
(1913)
established a definition of taxable income based on the basic operations of the firm
and as recorded in the accounting system.
Royal Decree on Social
Accounting regulation: The law introduced the requirement to prepare and publish
Balance Sheet
a ‘social balance sheet’ that comprises information on the number of employees,
(1996)
the labour movement schedules, the receipt of government incentives and grants,
and educational programs offered for employees.
The table provides general information on the time period, data sources, search terms, and secondary literature used
in the data collection. An asterisk (*) indicates a premier (business) newspaper outlet in a country; a dollar sign ($)
indicates that the electronic archive does not offer free access, but needs a subscription; E stands for electronic
archive that is accessible through key word search. The table also lists a few illustrative examples of corporate
scandals and accounting regulations identified in the search.
22
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A3.2
Incidents of Corporate Scandals and Accounting Regulation in Belgium by Decade
Corporate Scandals
Decade
1830
1840
1850
1860
1870
1880
1890
1900
1910
1920
1930
1940
1950
1960
1970
1980
1990
2000
2010
Total
Accounting
0
0
0
0
1
0
0
2
1
0
2
0
0
0
0
1
1
2
0
10
Near
Accounting
0
0
0
0
0
0
1
0
0
0
4
0
2
0
1
2
1
0
1
12
Accounting Regulation
Other
Total
1
0
0
0
1
1
1
1
2
2
1
1
1
1
3
3
3
2
2
26
1
0
0
0
2
1
2
3
3
2
7
1
3
1
4
6
5
4
3
48
Accounting
0
1
0
0
1
1
0
0
1
0
2
0
1
0
6
2
2
5
0
22
Other
1
1
0
0
0
1
0
0
2
1
0
1
0
1
0
1
2
1
2
14
Supranational
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1
1
4
2
8
Total
1
2
0
0
1
2
0
0
3
1
2
1
1
1
6
4
5
10
4
44
The table reports the number of corporate scandals and accounting regulations by decade and type for Belgium over
the 1831 to 2015 period (N = 179 years). For the empirical analyses, we classify the corporate scandals that we
identified in the data collection as either “accounting scandal”, “near accounting scandal”, or “other scandal” and the
regulatory actions as either “accounting regulation”, “other regulation”, or “supranational regulation.” See Section 2
of the main text for details. If feasible, we measure corporate scandals in the year they are first covered in the
financial press, and accounting regulation in the year it is enacted.
23
APPENDIX
A4.!
CORPORATE SCANDALS AND REGULATION
Brazil
A4.1.! Overview
Brazil was a Portuguese colony when in 1808 the king of Portugal fled Napoleon’s army to
Rio de Janeiro. Prior to this date, business entrepreneurship was prohibited, and the purpose of
accounting was to report taxes to the Portuguese crown. Together with the king, all areas of the
royal administration (i.e. Royal Treasury, Council of Public Finance, etc.) were moved to Rio de
Janeiro, and the first Brazilian private companies were incorporated to facilitate international
trade. In 1822, the Kingdom of Brazil declared its independence. The few firms that existed were
subject to very limited corporate laws or regulations. Modelled on the Commercial Code from
Portugal, the Brazilian Commercial Code was introduced in 1850. Following a banking crisis in
1857, legislation was enacted in 1860 to better protect investors. It required certain corporations
to present financial statements to shareholders and the government. These reporting requirements
were extended in 1882 to include additional disclosures and an auditor’s report.
In 1888, Brazil abolished slavery. The next year marked the end of the Brazilian monarchy
and the formation of the Republic of Brazil. A new constitution followed in 1891. Company laws
remained largely unchanged until the enactment of new legislation in 1940. It introduced
additional specific reporting requirements. A new tax code was implemented in 1942, which laid
out the rules for the computation and collection of corporate income taxes. Aside from a
definition of income, it contained restrictions on the deductibility of expenses. In 1937, a military
coup installed a dictatorship at the head of state. After the end of World War II and a short period
with democratic elections, yet another coup led to the seizure of power by an anti-communist
military regime in 1964. This regime enacted legislation that assigned the duties of a securities
commission to the Central Bank. Following the 1971 stock market crash, the Central Bank
started to issue Circular Letters. These legal notes contained detailed accounting requirements
and guidelines with the purpose to better align the country with international practices. The
Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários, CVM) was
created in 1976. A period of high inflation combined with a sovereign debt crisis in the 1980’s
led to the demise of the military regime, and culminated in the democratic presidential elections
of 1989. In 2007, a new company law was introduced. It moved the country closer to a common-
24
APPENDIX
CORPORATE SCANDALS AND REGULATION
law approach regarding the process of accounting regulation and promoted the convergence of
Brazilian GAAP with International Financial Reporting Standards IFRS.
A4.2.! Data Collection
We start our data collection in 1875 with the first issue of the O Estado de São Paulo, one of
the major Brazilian daily newspapers (https://en.wikipedia.org/wiki/O_Estado_de_S._Paulo).
The digitized archive allows for electronic keyword searches, and the initial search using a
comprehensive list of terms yielded a large number of hits (> 50,000). To pare down the number
of newspaper articles and improve the results, we limited the search to the headlines and the first
paragraph in the next iteration. We then screened each article for potential scandals that met our
definition. Once we had identified an episode, we conducted another keyword search using the
company names and the time period to gather additional information. We supplemented our
search with articles from another daily newspaper (Folha de São Paulo) and the online archive
of Brazil’s premier business newspaper, Valor Econômico. We gauge the importance of the
scandals by checking whether they were mentioned in the media multiple times, and/or we could
identify them from secondary sources.
For regulatory activity, we relied on a survey of secondary literature. We identified the
major national laws on accounting and securities regulation. We also surveyed select institutions
that helped to improve accounting regulation like the CVM. The CVM issued more than 500
mandatory instructions since its inception in the 1970s. We examined each, but only included
those that we deemed relevant (e.g., as judged by their inclusion in accounting textbooks). Table
A4.1 provides additional details on the data collection procedure.
A4.3.! Data Description
In Figure A4.1 we graphically plot the mentions of “Scandal” and “Regulator” in the
historical archives of O Estado de São Paulo. The newspaper was founded in 1875 and therefore
the time series covers the years 1875 to 2015. We used the Portugese translations of our broad
search terms for the analysis. We observe a continuous increase in the mentions of “Scandal”
from 1965 onwards, which accelerates in the 1990s, and reaches a peak in 2006. The number of
mentions of “Regulator” is much lower, with peaks in 1898 and 1938, and a slight upward shift
over the last 20 years. The correlation between the two terms is 65% during the entire period,
25
APPENDIX
CORPORATE SCANDALS AND REGULATION
which is on the lower side compared to other countries. Over the 1875 to 1945 period, the two
terms are not correlated.
Table A4.2 reports descriptive statistics on the incidents of corporate scandals and
accounting regulation by decade identified for Brazil. The data covers the period 1875 to 2015.
We could identify 38 corporate scandals and 34 regulatory acts. We observe hardly any
corporate scandals before 1970. Most of the scandals reported in the media pre-1970 dealt with
cases of embezzlement and corruption by government officials and employees, and did not
originate from the private sector. Over the last 25 years, the cases of corporate wrongdoing and
accounting scandals increased. The regulatory activity reveals a similar pattern with most new
regulations occurring after 1970.
26
APPENDIX
CORPORATE SCANDALS AND REGULATION
FIGURE A4.1
Media Mentions of the Terms “Scandal” and “Regulator” from 1875 to 2015 in Brazil
9:...
;<#'=#*
>"?@*#+&$
7:1..
!"#$%&'()&$$"*#+,&'%7851(+&(9.71
./012
7851(+&(7641
3./.42
7640(+&(9.71
./560
765.(+&(9.71
./545
7:...
1..
.
7851
7881
7861
76.1
7671
7691
7621
7641
7611
7601
7651
7681
7661
9..1
9.71
The figure plots the yearly number of incidents the terms “scandal” and “regulator” (or the local equivalents) are
mentioned in the business press. We plot the results from searching the Brazilian newspaper O Estado de São Paulo
over the period 1875 to 2015. We use the terms “scandal” (“Escândalo”) and “regulator” (“Regulador”). We also
indicate the contemporaneous Pearson correlation coefficients between the two time-series over the entire period as
well as over various sub-periods.
27
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A4.1
Overview of Data Collection Procedure in Brazil
1. Earliest year of data collection and time period coverage:
Start date: January 4, 1875
Coverage: 1875 to 2015
2. Data sources, time period used for search, and data accessibility:
-! O Estado de São Paulo (1875 to 2015); online newspaper archive ($; E): http://acervo.estadao.com.br/
-! Folha de São Paulo (1921 to 2015); online newspaper archive (E): http://acervo.folha.uol.com.br/acervo/
-! Valor Econômico* (1996 to 2015); online newspaper archive ($; E): http://acervo.valor.com.br/
3. Key search terms and translations into local language (main terms only):
Scandal: escândalo, casos, fraudes.
Accounting scandal/fraud: escândalo contábil, escândalo contabilístico, fraude contábil, fraude contabílistica,
caso contábil, caso contabilístico, escândalo corporativo, fraude corporativa, improbidade financeira.
Earnings management: gerenciamento de resultados, manipulação de resultados, contabilidade criativa.
Regulator: regulador, regrador, mediador.
Accounting regulation: regulação contábil, regulação contabilística, regulação corporativa.
Securities regulation/law: regulação dos valores mobiliários, regulação dos mercados mobiliários, Lei das
Sociedades por Ações, Instruções da CVM.
4. Special remarks about data collection:
-! Most scandals identified in the newspapers before 1970 dealt with cases of embezzlement and corruption by
government officials and employees, and did not originate from the private sector.
-! During the high inflation period in the 1990s, the development of Brazilian GAAP was heavily influenced by
accounting practices and rules in the U.S.
-! The global financial crisis of 2008 had an abated/delayed effect in Brazil because the government heavily
engaged in anti-cyclical spending. Hence, we did not identify as many scandals around this time as in other
countries.
-! To identify substantive accounting regulations, we had to read many of the CVM instructions in detail.
5. Secondary literature (main resources):
Carvalho, L., and Á. Filho. 2011. Chapter 2: Brazil. In: Previts, G., P. Walton, and P. Wolnizer (eds.). A Global
History of Accounting, Financial Reporting and Public Policy: Americas. Emerald Group Publishing:
Bingley, UK: 23–49.
Equipe de Professores da Faculdade de Economia, Administração e Contabilidade. 2010. Contabilidade
Introdutória. 11. Ed. Atlas: São Paulo.
Perez Junior, J., and L. Oliveira. 2012. Contabilidade Avançada: Texto e Testes com as Respostas. 8. Ed. Atlas:
São Paulo.
Santos, J., and P. Schmidt. 2015. Contabilidade Societária. 5. Ed. Atlas: São Paulo.
6. Research assistant (RA) and local country expert (CE):
RA: Gabriel Voelcker, Universidade do Vale do Rio dos Sinos
CE: Professor Rodrigo Verdi, MIT
(Continued)
28
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A4.1—Continued
7. Examples of corporate scandals:
Açucareira Alaska
Accounting scandal: The sugar manufacturing company deliberately defrauded
(1955)
creditors by overstating the amount and value of assets in the firm’s financial
statements.
Petrobrás (1988)
Near accounting scandal: The state-controlled oil company was found guilty of
hiding accounting profits with select financial institutions, which invested the
money on its behalf during a period of high inflation.
Operation Car Wash
Other scandal: Operation Car Wash is the name of one of the biggest money
(Operação Lava Jato)
laundering and corruption investigations in the history of Brazil. It examines the
(2014)
money laundering practices of several big corporations, including Petrobrás, in
which executives are alleged to have accepted bribes in exchange for awarding
construction contracts at inflated prices. Consequently, the company had to writedown overvalued assets and restate earnings. Several high-level politicians are
involved in the scandal.
8. Examples of accounting regulation:
Accounting Decree
Accounting regulation: Among other things, the law introduced requirements
(1882)
regarding the organization of the annual shareholders’ meeting, and the disclosure
and filing of a firm’s balance sheet and statutory audit report.
Decree-Law 4178
Accounting regulation: The law set out the rules for the computation and collection
(1942)
of corporate income taxes. It explicitly stipulated that corporations would be taxed
according to their “actual profits earned,” for which the firm’s balance sheet and
income statement served as the basis.
Resolution 1255 of the
Accounting regulation: The Brazilian accounting Board (CPC, Comitê de
Brazilian Accounting
Pronunciamentos Contábeis) implemented a local version of IFRS for small and
Pronouncements
medium-sized enterprises, which became effective in 2009. These voluntary rules
Committee (2009)
were endorsed by the national body of the accounting profession (i.e., the Brazilian
Federal Accounting Council).
The table provides general information on the time period, data sources, search terms, and secondary literature used
in the data collection. An asterisk (*) indicates a premier (business) newspaper outlet in a country; a dollar sign ($)
indicates that the electronic archive does not offer free access, but needs a subscription; E stands for electronic
archive that is accessible through key word search. The table also lists a few illustrative examples of corporate
scandals and accounting regulations identified in the search.
29
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A4.2
Incidents of Corporate Scandals and Accounting Regulation in Brazil by Decade
Corporate Scandals
Decade
1870
1880
1890
1900
1910
1920
1930
1940
1950
1960
1970
1980
1990
2000
2010
Total
Accounting
0
0
0
0
0
0
0
0
1
1
0
1
2
4
5
14
Near
Accounting
0
0
1
0
0
0
0
0
0
1
0
3
3
0
0
8
Accounting Regulation
Other
Total
0
0
0
0
0
0
0
0
0
1
3
3
1
1
7
16
0
0
1
0
0
0
0
0
1
3
3
7
6
5
12
38
Accounting
0
1
0
0
0
0
1
3
0
0
6
6
4
5
3
29
Other
0
0
0
0
0
0
0
0
0
1
0
0
2
1
1
5
Supranational
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Total
0
1
0
0
0
0
1
3
0
1
6
6
6
6
4
34
The table reports the number of corporate scandals and accounting regulations by decade and type for Brazil over
the 1875 to 2015 period (N = 141 years). For the empirical analyses, we classify the corporate scandals that we
identified in the data collection as either “accounting scandal”, “near accounting scandal”, or “other scandal” and the
regulatory actions as either “accounting regulation”, “other regulation”, or “supranational regulation.” See Section 2
of the main text for details. If feasible, we measure corporate scandals in the year they are first covered in the
financial press, and accounting regulation in the year it is enacted.
30
APPENDIX
A5.!
CORPORATE SCANDALS AND REGULATION
Canada
A5.1.! Overview
Beginning in the 16th century, Canada was colonized by the French and British. Following
the British North America Act of 1867, the colonies of Canada, New Brunswick, and Nova
Scotia were joined to form the semi-autonomous Dominion of Canada. Over the years, other
colonies and territories joined the dominion. Until the mid-1800s, the fishing industry, the furtrade, and the lumbering industry dominated the Canadian economy, and water transportation
was essential to maintain trade relations. To diversify and spur growth, the federal government
strongly supported the construction of railways, and by the 1870s Canada’s railways network
was one of the longest in the world. The country went through a period of economic prosperity
from the 1890s to 1915. Due to its ties to Great Britain, Canada was drawn into World War I,
during which Canadian forces played an important role on the side of the allies. The immediate
post-war years saw a short, but severe recession as the economy readjusted to the end of the
wartime production. A short period of increasing standards of living followed and items such as
radios, automobiles, or electric lights became common place across the country. Canada was hit
hard by the Great Depression during the early 1930s. After Canada’s engagement in World War
II, the economy underwent a big expansion and transformation with several decades of low
unemployment and strong economic growth. In 1982, Canada removed the last legal ties with the
United Kingdom and achieved full sovereignty. Around the same time, a nationalist movement
formed in Quebec. After years of political and social unrest, two (unsuccessful) referendums
about the secession of the French-speaking province of Quebec were held. In 1988, Canada
strengthened its ties with the United States by negotiating a Free Trade Agreement, which in
1994 was expanded to include Mexico. The global financial crisis of 2008 hit the country hard.
To diversify exports and foster growth, Canada has expanded its economic ties with Asian
markets in recent years.
Canadian accounting and company legislation was heavily influenced by British and
American law and practice. Moreover, many of the early regulations took place at the provincial
level, with Ontario playing a leading role because of its financial and industrial power.
Coordination on the federal level occurred mainly through voluntary agreements among the
provinces over time. The provincial rules were replaced and/or supplemented by federal
31
APPENDIX
CORPORATE SCANDALS AND REGULATION
legislation. The Companies Act of 1850 was the first modern-style law of incorporation and set
out the rights and duties of the directors and shareholders. The Dominion Companies Act of 1869
was the first corporate law to extend throughout the newly formed Dominion of Canada, and
harmonized but also revised the existing rules of incorporation. Around the same time, various
disclosure regulations were issued for regulated industries such as railways, banks, and insurance
firms. In 1907, the Ontario Companies Act mandated the filing of a prospectus and the
engagement of an auditor, and contained details on the balance sheet and income statement
disclosures. Many of these provisions were drawn directly from the recommendations of the
Institute of Chartered Accountants of Ontario (ICAO), illustrating the prominent role of
professional organizations in Canadian standard setting. This role was later continued by the
Canadian Institute of Chartered Accountants (CICA) that was incorporated by an act of
parliament in 1902. Soon thereafter, CICA started issuing recommendations regarding all matters
of accounting and formed several committees that were involved in the standard setting process
on the provincial and federal level. In 1965, the Ontario Securities Act charged the Ontario
Securities Commission to oversee and regulate the Toronto stock exchange with powers similar
to the U.S. Securities and Exchange Commission. The Canadian Business Corporation Act of
1975 delegated Canadian standard setting to CICA. In 1991, CICA established the Canadian
Accounting Standards Board (AcSB), which served as an independent standard setting body in
Canada and promoted the development of internationally accepted standards. In the mid-2000s,
Canada took measures that would require publicly listed firms to report under International
Financial Reporting Standards (IFRS) beginning from 2011.
A5.2.! Data Collection
We start our data collection in 1844 with the first digitized issue of The Globe and Mail
(until 1936 known as The Globe; https://en.wikipedia.org/wiki/The_Globe_and_Mail), one of the
leading daily newspapers in Canada based in Toronto. The electronic archive allows for key
word search, and we screened every article containing the search terms for potential episodes of
scandals that met our definition. We then conducted another search using the company names
and time-periods identified to assess the economic importance of the event. We supplement these
results with key word searches in the electronic archive of the Toronto Star, another major
Canadian daily newspaper, and secondary literature.
32
APPENDIX
CORPORATE SCANDALS AND REGULATION
We relied on a detailed survey of the secondary literature for regulation. This procedure
allowed us to identify the major national laws pertaining to company formation and accounting
rules. We also surveyed the online archives of CICA (now known as Chartered Professional
Accountants of Canada), the national organization of the Canadian accounting profession, as
well as the website of the Canadian standard setter AcSB. Table A5.1 provides additional details
on the data collection procedure.
A5.3.! Data Description
In Figure A5.1 we graphically plot the mentions of “Scandal” and “Regulator” in the
historical archives of The Globe and Mail. The time series covers the years 1844 to 2015. We
used the exact terms in the key word search, regardless whether they appeared on the front page,
in the headlines, or the body of the article. The mentions of “Scandal” are relatively volatile, but
hover around low levels for many years. They start to increase sharply in the mid-1980s, and
peak in 2002 and 2004. The mentions of “Regulator” are almost non-existent until they also start
to increase in 1980. The two terms are highly correlated over the entire period with a correlation
coefficient of 90%. The correlation is only 38% in the years until after World War II, but jumps
to 89% in the years thereafter.
Table A5.2 reports descriptive statistics on the incidents of corporate scandals and
accounting regulation by decade identified for Canada. The data covers the period 1844 to 2015.
We could identify 63 corporate scandals and 43 regulatory acts. Corporate scandals were present
during the entire sample period, with higher than normal numbers in the 1900s, 1930s, 1950s,
and most pronounced over the last three decades. The regulatory activity was more evenly
distributed over time, but also showed peaks around 1860, 1900, 1960, 1970, and 2000.
33
APPENDIX
CORPORATE SCANDALS AND REGULATION
FIGURE A5.1
Media Mentions of the Terms “Scandal” and “Regulator” from 1844 to 2015 in Canada
59...
:;#'<#*
=">?*#+&$
691..
!"#$%&'()&$$"*#+,&'%6477(+&(5.61
./0.1
6477(+&(6071
./234
6078(+&(5.61
./40.
603.(+&(5.61
./454
69...
1..
.
647.
641.
648.
643.
644.
640.
60..
606.
605.
602.
607.
601.
608.
603.
604.
600.
5...
5.6.
The figure plots the yearly number of incidents the terms “scandal” and “regulator” are mentioned in the business
press. We plot the results from searching the Canadian newspaper The Globe and Mail over the period 1844 to 2015.
We also indicate the contemporaneous Pearson correlation coefficients between the two time-series over the entire
period as well as over various sub-periods.
34
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A5.1
Overview of Data Collection Procedure in Canada
1. Earliest year of data collection and time period coverage:
Coverage: 1844 to 2015
Start date: March 5, 1844
2. Data sources, time period used for search, and data accessibility:
-! The Globe and Mail (until 1936: The Globe; 1844 to 2015); online archive through ProQuest Historical
Newspapers ($; E).
3. Key search terms (main terms only):
Scandal: scandal, fraud, misconduct, embezzlement, theft
Accounting scandal/fraud: accounting scandal, accounting fraud, corporate scandal, corporate fraud, financial
misconduct
Earnings management: earnings management, earnings manipulation, accounting manipulation, creative
accounting
Regulator: regulator, regulation, legislator, legislation, law, decree, order
Accounting regulation: accounting regulation, disclosure regulation, GAAP, generally accepted accounting
principles, accounting rules, bookkeeping regulation, bookkeeping rules
Securities regulation/law: securities regulation, securities law, financial markets oversight, company law
4. Special remarks about data collection:
-! We supplement our search of The Globe and Mail with searches in the electronic archive of the Toronto Star,
another widely read Canadian daily newspaper.
-! One should keep in mind that Canada, as a socialist country over many years, frequently used non-regulatory
measures to deal with scandals (e.g., bailouts, forced mergers, etc.), which might understate the regulatory
activity we want to capture in our search.
5. Secondary literature (main resources):
AICPA. 1975. Canada. In: International Practice Executive Committee (ed.). Professional Accounting in 30
Countries. American Institute of Certified Public Accountants: New York, NY: 105–128.
Baylin, G., L. MacDonald, and A. Richardson. 1996. Accounting standard-setting in Canada, 1864-1992: a
theoretical analysis of structural evolution. Journal of International Accounting and Taxation 5: 113–131.
Brearey, C. 2011. Chapter 3: Canada. In: Previts, G., P. Walton, and P. Wolnizer (eds.). A Global History of
Accounting, Financial Reporting and Public Policy: Americas. Emerald Group Publishing: Bingley, UK:
51–78.
Jones, M. 2011. Creative Accounting, Fraud and International Accounting Scandals. John Wiley & Sons: West
Sussex, UK.
Lew, B., and A. Richardson. 1992. Institutional responses to bank failure: a comparative case study of the
Home Bank (1923) and Canadian Commercial Bank (1985) failures. Critical Perspectives on Accounting 3:
163–183.
Murphy, G. 1986. A chronology of the development of corporate financial reporting in Canada: 1850 to 1983.
The Accounting Historians Journal 13: 31–62.
Murphy, G. 1993. A History of Canadian Accounting Thought and Practice. Garland Publishing: New York,
NYC.
Richardson, A. 2011. Regulatory competition in accounting. A history of the Accounting Standards Authority
of Canada. Accounting History Review 21: 95–114.
6. Research assistant (RA) and local country expert (CE):
RA: Jonathan Hori, University of Chicago
CE: Professor Alan Richardson, University of Windsor
(Continued)
35
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A5.1—Continued
7. Examples of corporate scandals:
Ontario Bank (1906)
Accounting scandal: The bank had falsified its financial statements by overstating
assets on the balance sheet and understating losses on the income statement. Once
the issues became public, the struggling institution had to be rescued by other major
banks.
Nortel (2003)
Accounting scandal: After recording a “big bath” in previous years, the telecom
company returned to profitability and paid out high bonuses to its top management.
These positive results triggered an independent investigation (initiated by the chair
of the audit committee). It turned out that the firm had systematically understated
liabilities, inflated asset write-downs, and recorded revenues prematurely to
manage earnings over time. The company had to restate its accounts. Executives
were fired and had to return bonus payments received based on non-existent profits.
Kinross Gold (2012)
Accounting scandal: The company acquired 100% of the shares of a gold mine in
Mauritania, Africa, and in its 2010 annual report proposed aggressive expansion
plans. The expansion plan was never implemented in that form. Thus, class action
lawsuits were brought against the company accusing it of overstating assets (i.e.,
not having disclosed a write-down of the goodwill from the acquisition) and
withholding material information about the lower than expected gold quality at the
acquired site as well as the stalling progress of the expansion project.
8. Examples of accounting regulation:
Ontario Building
Accounting regulation: The provincial law required the appointment of an auditor
Societies Act
to review the financial reports, and the forwarding of an annual “full and clear
(1876)
statement of assets and liabilities” to the provincial treasurer. The treasurer then had
the option to publish these statements “in such a manner as he thinks most
conductive to the common good.”
Companies Act
Accounting regulation: In line with the U.S. Securities Act of 1933/34, these
(1934/35)
federal laws prescribed expanded disclosures and greater detail in the income
statement and the balance sheet. They introduced valuation principles for
inventories and fixed assets and permitted the preparation of consolidated accounts.
Auditors were required to certify the financial statements in the prospectuses of the
firm.
Canadian Business
Accounting regulation: The law delegated the authority to set accounting standards
Corporation Act
in Canada to the Canadian Institute of Chartered Accountants (CICA) by requiring
(1975)
firms to comply with generally accepted accounting principles as laid out in the
CICA handbook.
The table provides general information on the time period, data sources, search terms, and secondary literature used
in the data collection. An asterisk (*) indicates a premier (business) newspaper outlet in a country; a dollar sign ($)
indicates that the electronic archive does not offer free access, but needs a subscription; E stands for electronic
archive that is accessible through key word search. The table also lists a few illustrative examples of corporate
scandals and accounting regulations identified in the search.
36
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A5.2
Incidents of Corporate Scandals and Accounting Regulation in Canada by Decade
Corporate Scandals
Decade
1840
1850
1860
1870
1880
1890
1900
1910
1920
1930
1940
1950
1960
1970
1980
1990
2000
2010
Total
Accounting
0
0
0
0
0
0
1
0
1
0
0
1
0
0
2
4
5
2
16
Near
Accounting
0
0
1
0
0
1
0
1
1
2
0
0
1
0
0
0
2
0
9
Accounting Regulation
Other
Total
1
3
1
2
2
0
3
1
1
2
1
4
0
1
2
4
9
1
38
1
3
2
2
2
1
4
2
3
4
1
5
1
1
4
8
16
3
63
Accounting
0
2
2
2
0
2
3
2
2
2
2
1
3
6
1
1
3
1
35
Other
0
1
2
0
0
0
1
0
0
0
1
0
1
0
0
0
2
0
8
Supranational
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Total
0
3
4
2
0
2
4
2
2
2
3
1
4
6
1
1
5
1
43
The table reports the number of corporate scandals and accounting regulations by decade and type for Canada over
the 1844 to 2015 period (N = 172 years). For the empirical analyses, we classify the corporate scandals that we
identified in the data collection as either “accounting scandal”, “near accounting scandal”, or “other scandal” and the
regulatory actions as either “accounting regulation”, “other regulation”, or “supranational regulation.” See Section 2
of the main text for details. If feasible, we measure corporate scandals in the year they are first covered in the
financial press, and accounting regulation in the year it is enacted.
37
APPENDIX
A6.!
CORPORATE SCANDALS AND REGULATION
People’s Republic of China
A6.1.! Overview
Under the Qing dynasty, China introduced its first western-style Company Law in 1904 to
counter decades of Western and Japanese commercial dominance and reform the Chinese
economy. The law also was an attempt to overcome restrictions to China’s sovereignty imposed
by the system of “extraterritoriality” (i.e., the state of being exempted from local jurisdiction that
applied to many foreign companies doing business in China at the time). Between the fall of the
Qing government in 1911 and the rise of the Nationalist movement in 1927, many important
Chinese industries heavily depended on international connections and multinational corporations
operating within China. Domestic Chinese business practices were deeply rooted in traditional
family networks with close ties to local government, and the issuance of stock as a means of
raising external capital played only a marginal role.
The new Nationalist government redefined the role of company law as a vehicle to promote
the state’s dominance over all private enterprises, foreign and domestic. State monopolies were
established, several leading commercial banks nationalized, and private companies suspected of
collaboration with the Japanese appropriated. The gains accrued from these actions benefitted
almost exclusively four politically powerful, well-connected families. The Nationalist Regime’s
New Company Law of 1946 made it clear that the government would determine the nature and
terms of any foreign business presence in China. When in 1949 the communist People’s
Liberation Army ousted the Nationalists, much of Chinese industry was already controlled by the
government. The People’s Republic of China continued the trend toward greater government
control and implemented a soviet-style planned economy model of accounting for state-run
companies. Chinese company and accounting laws would be revised several times over the years
leading up to the 1980s, but the main objectives always remained to promote economic
development and strengthen the power of the central government.
In 1979, China initiated the long process of opening the economy to private and foreign
investment and harmonizing Chinese financial regulations with prevailing international practices.
The government created Special Economic Zones, and modernized legislation by introducing
stimuli such as the Law on Joint Ventures Using Chinese and Foreign Investment (1979). Further
steps taken in the direction of China’s transition to a “socialist market economy” included a
38
APPENDIX
CORPORATE SCANDALS AND REGULATION
comprehensive Accounting Law (1985) and Company Law (1994). These laws reintroduced
double-entry bookkeeping and the concept of the private limited liability company. They also
laid the legal foundations for the Accounting Standard for Business Enterprises put into effect in
2007. This standard was an attempt to harmonize Chinese financial reporting with International
Financial Reporting Standards (IFRS). The Chinese Ministry of Finance has since committed to
the continuing convergence of Chinese GAAP with IFRS.
A6.2.! Data Collection
We start our data collection in 1878 with Shen Bao (i.e., Shanghai News), one of the first
modern Chinese daily newspapers that played a pivotal role in the formation of public opinion at
the time (https://en.wikipedia.org/wiki/Shen_Bao). The newspaper was founded in 1872, but the
search did not yield any usable results over the first six years. The digitized archive allows for
electronic keyword searches, and the initial search using a comprehensive list of terms yielded
about 2,000 hits. We then screened each article for potential episodes of scandals that met our
definition. Once we identified a scandal, we conducted another search using the company names
and time-periods identified to assess the economic importance of the event. Shen Bao was
discontinued in 1949 after the founding of the People’s Republic of China. We continued our
search with the digitized archive of the People’s Daily, the most influential newspaper in today’s
China (https://en.wikipedia.org/wiki/People%27s_Daily). The archive allows for keyword
searches, and we followed the same procedures as above. People’s Daily is the official outlet of
the Chinese Communist Party and is subject to censorship and political agenda setting. Thus, for
the period after 2000, we supplemented our search with additional newspapers like the business
outlet 21st Century Business Herald. However, we note that all Chinese press is monitored by the
state to a certain degree and, hence, might lack independent coverage of corporate scandals. We
further considered secondary sources in the search for Chinese corporate scandals. For instance,
we reviewed firms with enforcement actions for financial misrepresentation as issued by the
China Securities Regulatory Commission (CSRC; see e.g., Hung, Wong, and Zhang 2015). Even
though many of these events most likely fall under criteria (1) to (3) of our definition (see Table
2 of the main text), they typically lack the public scrutiny and attention we require for a
corporate scandal to be included in the database. Thus, only a select few of these cases ended up
39
APPENDIX
CORPORATE SCANDALS AND REGULATION
being coded in our search (i.e., those with comprehensive press coverage). We explicitly exclude
primarily political scandals and cases of bribery or embezzlement by government officials.
We relied on a survey of secondary literature for regulatory activity. We identified the major
national laws on accounting and securities regulation. Once identified, we confirmed each event
with the corresponding source material. We also surveyed select institutions that are involved in
accounting regulation like the CSRC or the Ministry of Finance. Table A6.1 provides additional
details on the data collection procedure.
A6.3.! Data Description
In Figure A6.1 we graphically plot the mentions of “Scandal” and “Regulator” in the
historical archives of Shen Bao (1878 to1948) and People’s Daily (1949 to 2015). Even though
Shen Bao was founded in 1872, we start the analysis in 1878 because of lack of observations in
the previous years. The newspaper was discontinued in 1949, when People’s Daily was founded.
Thus, the combined time-series covers the years 1878 to 2015. We used the Chinese translations
of our broad search terms as well as some terms that capture the same underlying construct for
the analysis. The two time-series move closely together with a correlation coefficient over the
entire period of 88% (68% before and 93% after 1949). There are three pronounced peaks in the
scandals data, the first in 1934, the second in 1946, and the third in 2004. The mentions of
“Regulator” follow a similar pattern, but typically fall below the mentions of “Scandal.”
Table A6.2 reports descriptive statistics on the incidents of corporate scandals and
accounting regulation by decade identified for China. The data covers the period 1878 to 2015.
We could identify 127 corporate scandals and 60 regulatory acts. While there was an early peak
in corporate scandals in the 1930s, the numbers started to increase substantially after 1990.
Almost two thirds of the scandals occurred during the last 15 years of the sample period. One
explanation for this stark increase might be the heightened attention that corporate misconduct
and corruption received from China’s political leaders in recent years. Regulation also exhibited
higher activity after 1980. This period coincided with the gradual opening of the Chinese
economy to private and foreign investment, which brought along many new laws and rules.
40
APPENDIX
CORPORATE SCANDALS AND REGULATION
FIGURE A6.1
Media Mentions of the Terms “Scandal” and “Regulator” from 1878 to 2015 in China
8..
9:#';#*
<"=>*#+&$
5..
!"#$%&'()&$$"*#+,&'%6010(+&(4.67
./012
6010(+&(6280
./312
6282(+&(4.67
./242
621.(+&(4.67
./253
4..
6..
.
6017
6007
6027
62.7
6267
6247
6257
6287
6277
6237
6217
6207
6227
4..7
4.67
The figure plots the yearly number of incidents the terms “scandal” and “regulator” (or the local equivalents) are
mentioned in the business press. We plot the results from searching the Chinese newspapers Shen Bao (i.e.,
Shanghai News; 1878 to1948) and People’s Daily (1949 to 2015). We use the terms “scandal” (“SI” or “”)
and “fraud” (“'4”, “7N” or “7”, and “N” or “”) together with “supervising authority” (“@G0” or
“G13”, “@C0” or “C13”, and “@#0” or “#13”) and “company law” (“)”, “5”
or “2”, and “;”). We also indicate the contemporaneous Pearson correlation coefficients between the
two time-series over the entire period as well as over various sub-periods.
41
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A6.1
Overview of Data Collection Procedure in China
1. Earliest year of data collection and time period coverage:
Coverage: 1878 to 2015
Start date: January 1, 1878
2. Data sources, time period used for search, and data accessibility:
-! Shen Bao (, 1878 to 1949); online archive through university library (E):
http://www.huawenku.cn/html/huawenkuguihua/ruxuanbaokan-20120306856.html
-! People’s Daily (, 1949 to 2015): online archive through university library (E) and Factiva ($; E):
http://www.huawenku.cn/html/huawenkuguihua/ruxuanbaokan-201302272398.html
-! 21st Century Business Herald* (21
, 2001 to 2015); online archive through WiseSearch ($; E)
3. Key search terms and translations into local language (main terms only):
Scandal: SI (), '4, 7, , J', J'4, 74, 4
Accounting scandal/fraud: , QAU(A), QAJ'(AJ'), 0LJ'(J'),
J',7N,,R
Earnings management: . R, AR, .A, J', >G=, -?G=, .>
Regulator: @G0 (G13), @C0(C13), @#0(#13)
Accounting regulation: 0L;(;), 0LKF(F), 0L5(2), *+T&
Securities regulation/law: P;(;), ), 5(2), ;
4. Special remarks about data collection:
-! The historical archive of the printed version of People’s Daily did not contain the last three sample years, and
we used Factiva instead. Factiva relies on the online version of People’s Daily and the search produced a
substantially higher number of hits. Thus, to make the two sources comparable for the time-series analysis of
media mentions, we divided the Factiva observations over the years 2013 to 2015 by ten.
-! The electronic search was based on traditional Chinese and simplified Chinese characters as appropriate,
along with adjustments to account for the evolution of the terminology over time.
-! The People’s Daily represents the Chinese Communist Party’s official views, and has been subject to
censorship. Thus, it might misrepresent the actual occurrence of financial misconduct in the economy.
Moreover, it might well be that the select corporate scandals mentioned in the People’s Daily had already
caught the regulator’s eye and therefore were publicized for a (political) reason.
-! All Chinese press is monitored by the state and therefore lacks independent coverage of corporate scandals.
-! China follows a three-level legislative and administrative framework: (1) the National People’s Congress, the
supreme law-making body; (2) the State Council, which is the highest organ of the state administration; and
(3) various commissions, ministries, and state bureaus, including the CSRC, the State Planning Commission,
the Ministry of Finance, etc. We included regulatory interventions from all three levels when deemed
relevant (e.g., as judged by their inclusion in secondary literature or media mentions).
-! We explicitly excluded scandals involving corruption and/or embezzlement by government officials (e.g.
state/municipality employees, etc.).
5. Secondary literature (main resources):
Guo, D., J. Xu, J. Kang, L. Peng, and J. Zhang. 2011. Chapter 2: China. In: Previts, G., P. Walton, and P.
Wolnizer (eds.). A Global History of Accounting, Financial Reporting and Public Policy: Asia and Oceania.
Emerald Group Publishing: Bingley, UK: 35–105.
Huang, A., and R. Ma. 2002. Accounting in China in Transition: 1949-2000. World Scientific Publishing:
Singapore.
Hung, M., T.J. Wong, and F. Zhang. 2015. The value of political ties versus market credibility: evidence from
corporate scandals in China. Contemporary Accounting Research 32: 1641–1675.
Jones, M. 2011. Creative Accounting, Fraud and International Accounting Scandals. Wiley: West Sussex, UK.
Kirby, W. 1995. China unincorporated: company law and business enterprise in twentieth-century China.
Journal of Asian Studies 54: 43–63.
Wang, J. 2014. Company Law in China. Edward Elgar Publishing: Cheltenham, UK.
Wei, Y. 2009. Securities Markets and Corporate Governance: A Chinese Experience. Ashgate Publishing:
Surrey, UK.
(Continued)
42
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A6.1—Continued
6. Research assistant (RA) and local country expert (CE):
RA: Wilbur Chen, Chinese University of Hong
CE: Professor T.J. Wong, University of Southern California
Kong; Melody Xu, Columbia University
7. Examples of corporate scandals:
Rubber Stock Crisis
Other scandal: There was a speculative bubble in the stocks of rubber companies.
(1910)
The most representative example of these firms was Langezhi Development
Company. Firms sought to benefit from the inflated stock prices by issuing new
shares. The fallout caused by sharp drops in stock prices once the bubble burst is
often cited as having contributed to the demise of the Qing Dynasty.
Shenzhen Yuanye
Accounting scandal: The textile manufacturer, which at the time was a listed
(1992)
Chinese-foreign joint venture, reported inflated profits and asset valuations in its
financial statements. The firm had recorded fictitious sales and benefited from
illegal profit transfers. Moreover, management was engaged in the embezzlement
of funds. It was the first high profile case of financial fraud in the People’s
Republic of China. The company’s audit firm was subsequently shut down for false
statements and negligent behaviour.
Kelon (2005)
Accounting scandal: The refrigerator maker came under scrutiny of the China
Securities Regulatory Commission (CSRC) for inflating profits and overstating
assets. Officials were managing earnings by recording too high/fictitious sales
revenues and reducing bad debt provisions. Senior management was also accused
of embezzlement of company funds. Eventually, several arrests were made.
8. Examples of accounting regulation:
Company Law
Other regulation: China’s first Company Law was drafted by the Qing Court with
(1904)
the goal of modernizing the economy (i.e., overcome constraints of the traditional
guilds, family partnerships, and guarantorships). The law was a hybrid between
Japanese and English company laws and set out fundamental principles of
corporate practices such as the idea of the limited liability company.
Business Accounting
Accounting regulation: This law was the first of its kind for private enterprises
Law
under the Nationalist government. It formally required business enterprises to keep
(1948)
accounting records and prepare financial statements in accordance with the doubleentry bookkeeping system. There were also specific accounting rules for revenue
recognition, asset valuation, and income determination.
Accounting Standards
Accounting regulation: This accounting reform established a new accounting model
for Business Enterprises
in the People’s Republic of China adapted to the market economy (replacing the
(1993)
former communist-style accounting). It was a first step to harmonize accounting for
private corporations with international accounting practices. The law regulated
basic accounting principles like the accounting for assets, liabilities, owner’s
equity, revenues, and expenses, and set out how to prepare a firm’s financial
reports.
The table provides general information on the time period, data sources, search terms, and secondary literature used
in the data collection. An asterisk (*) indicates a premier (business) newspaper outlet in a country; a dollar sign ($)
indicates that the electronic archive does not offer free access, but needs a subscription; E stands for electronic
archive that is accessible through key word search. The table also lists a few illustrative examples of corporate
scandals and accounting regulations identified in the search.
43
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A6.2
Incidents of Corporate Scandals and Accounting Regulation in China by Decade
Corporate Scandals
Decade
1870
1880
1890
1900
1910
1920
1930
1940
1950
1960
1970
1980
1990
2000
2010
Total
Accounting
0
0
0
0
0
0
1
0
0
0
0
1
15
23
29
69
Near
Accounting
0
0
0
1
1
0
4
2
1
0
0
3
0
10
4
26
Accounting Regulation
Other
Total
0
1
1
0
5
3
3
1
1
0
0
0
2
7
8
32
0
1
1
1
6
3
8
3
2
0
0
4
17
40
41
127
Accounting
0
0
0
0
2
0
1
2
2
2
0
6
9
6
2
32
Other
0
0
0
1
2
3
0
1
0
0
1
0
10
9
1
28
Supranational
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Total
0
0
0
1
4
3
1
3
2
2
1
6
19
15
3
60
The table reports the number of corporate scandals and accounting regulations by decade and type for China over
the 1878 to 2015 period (N = 138 years). For the empirical analyses, we classify the corporate scandals that we
identified in the data collection as either “accounting scandal”, “near accounting scandal”, or “other scandal” and the
regulatory actions as either “accounting regulation”, “other regulation”, or “supranational regulation.” See Section 2
of the main text for details. If feasible, we measure corporate scandals in the year they are first covered in the
financial press, and accounting regulation in the year it is enacted.
44
APPENDIX
A7.!
CORPORATE SCANDALS AND REGULATION
Denmark
A7.1.! Overview
With the new constitution of 1849, Denmark ended the absolute monarchy and, in business
terms, removed the requirement of royal authorization to establish a limited liability company.
From thereon, incorporated companies had to register with the state. Subsequent acts regulating
corporate formations included the Trade Act (1857), requiring government approval of articles of
association, and the Business Act (1862), requiring that the articles be filed with the state. The
number of limited liability companies in Denmark grew rapidly following the adoption of the
1862 act. A revision in 1889 attempted to harmonize Danish company law with the
corresponding laws in neighboring Norway and Sweden, with the intention to eventually pave
the way for a uniform Commercial Code among Scandinavian countries. The Bookkeeping Act of
1912 obliged companies to maintain books and financial records, and in 1917 the Danish Limited
Companies Act added more specific rules related to financial reporting and auditing. A revision
of this act in 1930 provided a legal foundation for the creation of so-called hidden reserves by
encouraging ‘prudent business practice’ as a guiding valuation principle. The Danish legal
system of financial reporting remained largely in place until 1973 when the Limited Companies
Act was replaced by the Public Limited Companies Act and the Private Limited Companies Act.
Among other things, these acts required all limited companies (including private, family-owned
businesses that were previously exempt) to prepare audited financial statements and make them
publicly available. In 1973, Denmark joined the European Economic Community (EEC) and
gradually began to harmonize local law and implement EEC Directives on financial reporting.
For instance, Denmark required firms listed on EU-regulated markets to prepare their financial
statements in accordance with International Financial Reporting Standards from 2005 onwards.
A7.2.! Data Collection
We start our data collection in 1884 with the first issue of the Politiken, one of the leading
Danish daily newspapers (https://en.wikipedia.org/wiki/Politiken). The digitized archive allows
for electronic keyword searches, and the initial search using a comprehensive list of terms
yielded a large number of hits (> 25,000). To pare down the number of newspaper articles and
improve the results, we limited the search to the headlines plus the first and last paragraph of the
45
APPENDIX
CORPORATE SCANDALS AND REGULATION
article in the next iteration. We then screened each article for potential scandals that met our
definition. Once we had identified an episode of corporate misconduct, we supplemented our
search with Google searches and articles from other newspapers including the business outlet
Dagbladet Børsen (https://en.wikipedia.org/wiki/Dagbladet_Børsen). We gauged the importance
of the scandals by checking whether they were mentioned in the media multiple times, and/or
whether we could identify them from secondary sources.
We relied on a survey of secondary literature for regulatory activity. We identified the major
national laws and EU Directives on accounting regulation. Once identified, we confirmed each
event with the corresponding source material including laws and ministerial orders. Table A7.1
provides additional details on the data collection procedure.
A7.3.! Data Description
In Figure A7.1 we graphically plot the mentions of “Scandal” and “Regulator” in the
historical archives of Politiken. The time series covers the years 1884 to 2015. We used the
Danish translations of our broad search terms as well as some terms that capture the same
underlying construct for the analysis. We observe relatively high volatility in the mentions of
both terms over time. The level of media mentions is notably lower in the period before 1960
than afterwards, and typically the mentions of “Scandal” outpace the mentions of “Regulator.”
The single largest peak of scandals occurs in 1999. The two terms are highly correlated, and the
correlation coefficient exceeds 80% over the entire period as well as over the 1946 to 2015
period. In the years before 1946, the correlation coefficient is 36%.
Table A7.2 reports descriptive statistics on the incidents of corporate scandals and
accounting regulation by decade identified for Denmark. The data covers the period 1884 to
2015. We could identify 52 corporate scandals and 29 regulatory acts. There were only a handful
of scandals before 1980, and most incidents occurred in the last 25 years. The regulatory activity
also exhibits an increase in regulations after 1970. This period coincided with the countryspecific implementation of several supranational directives and laws.
46
APPENDIX
CORPORATE SCANDALS AND REGULATION
FIGURE A7.1
Media Mentions of the Terms “Scandal” and “Regulator” from 1884 to 2015 in Denmark
69...
:;#'<#*
=">?*#+&$
294..
!"#$%&'()&$$"*#+,&'%2005(+&(6.24
./012
2005(+&(2754
./313
2751(+&(6.24
./034
278.(+&(6.24
./145
29...
4..
.
200.
207.
27..
272.
276.
273.
275.
274.
271.
278.
270.
277.
6...
6.2.
The figure plots the yearly number of incidents the terms “scandal” and “regulator” (or the local equivalents) are
mentioned in the business press. We plot the results from searching the Danish newspaper Politiken over the period
1884 to 2015. We use the terms “scandal” (“skandale”) and “fraud” (“svindel” and “bedrag”) together with
“regulation” (“regulering”) and “supervisory body” (“tilsynet” and “styrelsen”). We also indicate the
contemporaneous Pearson correlation coefficients between the two time-series over the entire period as well as over
various sub-periods.
47
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A7.1
Overview of Data Collection Procedure in Denmark
1. Earliest year of data collection and time period coverage:
Coverage: 1884 to 2015
Start date: October 1, 1884
2. Data sources, time period used for search, and data accessibility:
-! Politiken (1884 to 2015); online newspaper archive ($; E): http://politiken.dk/arkiv/
-! Dagbladet Børsen* (1970 to 2015); online newspaper archive ($; E): https://borsen.dk/avisen/boersen_earkiv.html
-! Berlingske Business* (1980 to 2015); online newspaper archive ($; E):!http://www.business.dk/artikel-arkiv
-! Finans.dk (1996 to 2015); online newspaper archive ($; E): http://finans.dk/arkiv/artikelarkiv/
3. Key search terms and translations into local language (main terms only):
Scandal: Skandale, bedrag, svindel
Accounting scandal/fraud: Erhvervsskandale, skandale AND regnskab
Earnings management: Kreativ bogføring, regnskabsmanipulation
Regulator: Regulering, styrelse, styrelsen, udvalg, commission, regulerende myndighed
Accounting regulation: Kommission AND regnskab, bogføringsloven, regel afsløring
Securities regulation/law: Tilsyn, tilsynet, finanstilsynet, tilsyns-, tilsynsmyndighed, myndighed, erhvervsret,
selskabslov, værdipapir, regnskabslov, bogføringslov
4. Special remarks about data collection:
-! Politiken served as our main resource, but we supplemented this newspaper with other outlets like the
business centric Dagbladet Børsen.
-! Even though the Politiken archives were available in electronic format, the downloaded documents pre-2012
did not allow a full-text search of the main text. Moreover, the readability of the downloaded documents pre1980 was sometimes difficult (and not comparable to the more recent years).
-! We included the online news outlets of Finans.dk and Berlingske Business in our supplementary search.
-! There are relatively few accounting scandals in Denmark. One explanation might be that the public’s (and
media’s) perception of what comprises the financial misconduct of a firm have changed over time. Thus,
coverage of accounting scandals by the press may differ between earlier and later time periods.
5. Secondary literature (main resources):
Christiansen, M. 1993. Denmark. European Accounting Review 2: 312–318.
Christiansen, M. 1995. Chapter 5: The history of financial reporting and auditing in Denmark. In: Walton, P.
(ed.). European Financial Reporting: A History. Academic Press: Cambridge, MA: 55–73.
Hansen, P. 2012. Making sense of financial crisis and scandal: a Danish bank failure in the first era of finance
capitalism. Enterprise and Society 13: 672–706.
Hansen, C., and O. Sørensen. 2003. Chapter 4: Denmark. In: Alexander, D., and S. Archer (eds.). European
Accounting Guide (5th ed.). Aspen Publishers: New York, NY: 4.01–4.27.
Quinn, S., and O. Sørensen. 1997. The regulation of financial reporting in Denmark and the Republic of
Ireland: a comparative study. In: Flower, J., and C. Lefebvre (eds.). Comparative Studies in Accounting
Regulation in Europe. Acco Publishers: Leuven, BE: 81–112.
6. Research assistant (RA) and local country expert (CE):
CE: Professor John Christensen, University of Southern Denmark
RA: Victor Musuku
(Continued)
48
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A7.1—Continued
7. Examples of corporate scandals:
Landmandsbanken
Accounting scandal: At the time, the company was the largest bank in the Nordic
(1922)
region. The directors, in particular CEO Emil Glückstadt, had inflated the bank’s
value by buying back its own shares at above market prices. They also concealed
massive losses from unsecured loans. After declaring bankruptcy, a run on the bank
started that required massive interventions by the Danish central bank. This scandal
happened after the burst of a multi-year speculative bubble on the Danish stock
market that led to the failure and restructuring of multiple Danish banks.
Nordisk Fjer
Accounting scandal: Over the years, the company had developed a complicated
(1990)
system of subsidiaries that allowed management to generate fictitious profits from
internal sales of cheap material/equipment at expensive prices thereby disguising
the real value of the firm to the auditors and investors. Moreover, whenever the
company’s cash flows were low, it took out new loans to cover the gap. These
techniques allowed the firm to pay dividends to investors even though operating
profits were declining.
Roskilde Bank
Near accounting scandal: The bank had large loans outstanding to real estate
(2008)
investors. When the financial crisis hit, the bank had to record massive losses on its
loan portfolio. It also enticed customers to buy company shares by lending them
money. After filing for bankruptcy, a court case was brought against management
and the bank’s auditor for untruthful reporting.
8. Examples of accounting regulation:
Bookkeeping Act
Accounting regulation: The law required all kinds of businesses (except farmers
(1912)
and craftsmen) to keep books relating to their financial affairs.
Public/Private Limited
Accounting regulation: The two laws required all limited companies regardless
Companies Act
whether they were listed and/or family owned to prepare audited financial
(1973)
statements and submit them to the Danish Commerce and Companies Agency
where they were available for public inspection.
Financial Statements Act Supranational regulation: The law represents Denmark’s implementation of the
(1981)
Fourth EEC Directive on annual accounts of companies with limited liability. It
consolidated existing regulations and prescribed minimum requirements regarding a
firm’s balance sheet, income statement, and footnote disclosures.
The table provides general information on the time period, data sources, search terms, and secondary literature used
in the data collection. An asterisk (*) indicates a premier (business) newspaper outlet in a country; a dollar sign ($)
indicates that the electronic archive does not offer free access, but needs a subscription; E stands for electronic
archive that is accessible through key word search. The table also lists a few illustrative examples of corporate
scandals and accounting regulations identified in the search.
49
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A7.2
Incidents of Corporate Scandals and Accounting Regulation in Denmark by Decade
Corporate Scandals
Decade
1880
1890
1900
1910
1920
1930
1940
1950
1960
1970
1980
1990
2000
2010
Total
Accounting
0
0
0
0
1
0
0
0
0
0
1
2
7
4
15
Near
Accounting
1
0
1
0
0
0
0
0
1
0
2
14
3
4
26
Accounting Regulation
Other
Total
0
0
0
0
0
0
0
0
0
1
2
3
4
1
11
1
0
1
0
1
0
0
0
1
1
5
19
14
9
52
Accounting
0
0
1
2
0
1
0
1
0
3
3
6
2
0
19
Other
1
0
0
1
0
0
0
0
0
0
0
1
2
0
5
Supranational
0
0
0
0
0
0
0
0
0
0
1
1
3
0
5
Total
1
0
1
3
0
1
0
1
0
3
4
8
7
0
29
The table reports the number of corporate scandals and accounting regulations by decade and type for Denmark over
the 1884 to 2015 period (N = 132 years). For the empirical analyses, we classify the corporate scandals that we
identified in the data collection as either “accounting scandal”, “near accounting scandal”, or “other scandal” and the
regulatory actions as either “accounting regulation”, “other regulation”, or “supranational regulation.” See Section 2
of the main text for details. If feasible, we measure corporate scandals in the year they are first covered in the
financial press, and accounting regulation in the year it is enacted.
50
APPENDIX
A8.!
CORPORATE SCANDALS AND REGULATION
Egypt
A8.1.! Overview
Egypt had a capitalist system and the private sector controlled most of the Egyptian
economy until the end of the monarchy in the early 1950s. The Alexandria Stock Exchange was
established in 1883, its Cairo counterpart in 1903. Both exchanges were very active, and the
combined trading volume ranked fifth in the world at the time. In 1914, at the onset of World
War I, the country was declared a British Protectorate. After the Egyptian revolution of 1952
(and the beginning of the Gamal Abdel Nasser era), the country’s economic focus shifted from
capitalist to socialist. Many important industries such as steel, chemical, heavy machinery, and
financial institutions were nationalized, and a centralized planning system was put in place. The
stock exchanges fell dormant after 1961 (and did not reactivate until 1992). The country engaged
in several military conflicts with neighboring Israel (1948, 1956, 1967, 1973). After Nasser’s
death in 1970, Anwar el-Sadat was elected President. He replaced socialism by “infitah,” an
economic policy of reduced taxes and tariffs combined with other economic incentives to foster
private and foreign investment. One of the goals was to develop tourism and the manufacturing
sector. In the 1990s, a series of arrangements with the International Monetary Fund, coupled
with a relief of sovereign debt, helped Egypt improve its macroeconomic performance. The
reforms continued in the 2000s and moved the country towards a more market-oriented
economy. In 2011, after widespread public protests, the Egyptian military assumed power,
dissolved the parliament, and announced elections. The newly elected regime was short-lived,
overthrown by the military, and replaced by a military-backed government. The economic
outlook worsened amid worries about social unrest and the country’s ability to meet its financial
targets.
The era of modern accounting in Egypt started in 1883 with the adoption of the Commerce
Act. The law tried to organize the accounting system and record keeping, which at the time was
shaped by Italian, French, and British influences. Political, economic, and governmental
corruption were endemic, and accounting played little role in providing useful information. In
1939, the Income Tax Act required all firms to submit financial statements to the tax authorities
in support of their tax returns. The act increased the demand for professional accounting services.
The Egyptian Royal Society for Accountants and Auditors was formed in 1946. After the
51
APPENDIX
CORPORATE SCANDALS AND REGULATION
revolution in 1952, accounting’s focus shifted from micro to macro. In the 1960s, a standardized
accounting system to support central planning and resource allocation was introduced. After the
war of 1973, the economy shifted more towards a market-based system. The Company Law of
1981 required private enterprises to prepare and disclose audited financial statements. In 1992,
the stock exchange was reinstituted and several measures were introduced to support and
modernize the financial system. For instance, listed companies were required to prepare financial
statements under International Accounting Standards (IAS). The charge of standard setting was
later delegated to a permanent committee that issued the Egyptian Accounting Standards (EAS).
They were modelled on IAS but adapted for local conditions. In the 2000s, the EAS were
updated to reflect International Financial Reporting Standards (IFRS).
A8.2.! Data Collection
We start our data collection in 1888 with The Egyptian Gazette, the oldest English-language
newspaper in the middle east (https://en.wikipedia.org/wiki/The_Egyptian_Gazette). There are
no digitized versions of this newspaper available, and we had to use microfilmed editions from
various university libraries to piece together a time series (e.g., Center for Research Libraries,
Penn State University, Northwestern University). The newspaper was founded in 1880, but the
first microfilm reels we could find started in 1888 and extended to 1966. To reduce the manual
workload, we limited our search to articles on the front page and the first page of the business
section of every edition. For the period between 1929 to 1963, we also used the microfilm
archive of La Bourse Égyptienne, a French-language financial newspaper. We limited our search
to the Thursday edition of each week. Because this was a specialized news outlet with a focus on
publicly listed firms, we did find quite a few episodes of financial misconduct during this period.
After 1966, we have 32 years without adequate and accessible newspaper coverage. We relied
upon secondary literature and searches in the historical archive of the U.K. Financial Times for
this period (but excluded the years 1967 to 1973, i.e., the time between the two Egyptian-Israeli
wars from the sample). For the remaining years after 1998, we used the digitized archives of Al
Ahram Weekly and the Daily News Egypt. These are well-regarded English-language newspapers
published in Egypt, and both have an electronically searchable historical archive available that
we used for our keyword search.
52
APPENDIX
CORPORATE SCANDALS AND REGULATION
We relied on a survey of secondary literature for regulatory activity. This procedure allowed
us to identify the major laws pertaining to company formation and accounting regulation. We
also considered the website of the! Egyptian Society of Accountants & Auditors (ESAA), the
professional body of accountants in the country, and the website of the Egyptian Financial
Supervisory Authority (EFSA) in our search. Table A8.1 provides additional details on the data
collection procedure.
A8.3.! Data Description
Unlike for the other sample countries, we could not conduct a time-series analysis of media
mentions in Egypt due to the lack of electronically searchable newspaper archives. We list
descriptive statistics on the incidents of corporate scandals and accounting regulation by decade
identified for Egypt in Table A8.2. The data covers the period 1888 to 2015. We could identify
46 corporate scandals and 37 regulatory acts. Most of the scandals in Egypt are not related to
accounting (i.e., we only identified 4 episodes of accounting misrepresentations), and occurred in
the middle period of our sample (i.e., from the 1920s to 1960s). The pattern is likely influenced
by the available newspaper sources, as this period coincides with the coverage by the only
financial newspaper that we use in the data search, La Bourse Égyptienne. In more recent years,
the incidents of scandals slightly increased. The regulatory activity exhibits a similar pattern.
There was a wave of new regulations issued around 1950, but also over the last three decades,
the level of regulatory activity is notably higher. This latter period coincided with the reemergence of the Egyptian capital market and the harmonization of Egyptian accounting with
international standards.
53
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A8.1
Overview of Data Collection Procedure in Egypt
1. Earliest year of data collection and time period coverage:
Coverage: 1888 to 2015 (without 1967 to 1973)
Start date: January 1, 1888
2. Data sources, time period used for search, and data accessibility:
-! The Egyptian Gazette (1888 to 1966); onsite access to newspaper microfilms at the Center for Research
Libraries and various university libraries (M)
-! La Bourse Égyptienne* (1929-1963); onsite access to newspaper microfilms at the Center for Research
Libraries (M)
-! Al Ahram Weekly (1998 to 2015); online newspaper archive (E): http://weekly.ahram.org.eg/
-! Daily News Egypt (2008 to 2015); online archive through Lexis Nexis ($, E)
3. Key search terms (main terms in English, as electronic search was only available for English newspapers):
Scandal: scandal, fraud, misconduct, embezzlement, theft
Accounting scandal/fraud: accounting scandal, accounting fraud, corporate scandal, corporate fraud, financial
misconduct
Earnings management: earnings management, earnings manipulation, accounting manipulation, creative
accounting
Regulator: regulator, regulation, legislator, legislation, law, decree, order
Accounting regulation: accounting regulation, disclosure regulation, GAAP, generally accepted accounting
principles, accounting rules, bookkeeping regulation, bookkeeping rules
Securities regulation/law: securities regulation, securities law, financial markets oversight, company law
4. Special remarks about data collection:
-! No analysis of media mentions for Egypt due to the lack of consistent digital archives that would allow
electronic key word search over long periods of time.
-! For large parts of the time series, only manually searchable newspaper resources were available. Thus, we
limited the search of hard copy or microfilm versions of daily newspapers to the front page and the first page
of the business section (The Egyptian Gazette) or the Thursday edition only (La Bourse Égyptienne).
-! For the period 1929 to 1963, we focus on La Bourse Égyptienne, and supplement the search with The
Egyptian Gazette only if microfilm editions of the former are missing.
-! Several years (months) had to be excluded from the manual search due to missing or illegible microfilm
archives for both newspapers (e.g., 1904-1922, 1939-1942, 6/1945 to 7/1946, 1953, 1/1955).
-! No digitized or hardcopy archives were available for the periods 1974-1997. For those periods, we identified
incidents of scandals from the secondary literature, web-based searches, and searches in the digital archive of
the U.K.-based Financial Times.
-! No suitable newspaper coverage during periods of military dictatorship and conflict with Israel, i.e., from
1967 (Six Day War) to 1973 (Yom Kippur War).
-! We explicitly excluded scandals involving corruption and/or embezzlement by government officials (e.g.
state/municipality employees, etc.).
5. Secondary literature (main resources):
Ali, S. 2012. Chapter 1: Egypt. In: Previts, G., P. Walton, and P. Wolnizer (eds.). A Global History of
Accounting, Financial Reporting and Public Policy: Eurasia, the Middle East and Africa. Emerald Group
Publishing: Bingley, UK: 1–15.
Biggs, D. 2010. Chapter 6: The Arab Republic of Egypt. In: Beschel, R., and M. Ahern (eds.). Public Financial
Management in the Middle East and North Africa: An Overview of Regional Experience. The World Bank:
Washington, DC: 94–100.
6. Research assistant (RA) and local country expert (CE):
RA: Andreea Moraru-Arfire, University of Neuchatel;
Walid Beramdane, University of Pennsylvania;
Benjamin Miller, Northwestern University
CE: n.a.
(Continued)
54
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A8.1—Continued
7. Examples of corporate scandals:
Suez Canal Company
Near accounting scandal: French former diplomat Ferdinand de Lesseps, founder
(1894)
of the company in 1858 that built the Suez Canal, and the early directors are
accused by several Egyptian notables of misappropriation of funds and
embezzlement. They were accused of giving away so-called founder shares to
friends and relatives below value and to have misappropriated shares that rightfully
would have been assigned to Egyptian participants. The alleged transactions go
back to the early years of the company’s foundation.
Banque Commerciale
Other scandal: The deputy director of the bank was arrested over illegal trades for
Séoudite du Caire (1961) large amounts of foreign currency on the black market for his clients. The bank lost
its licence for currency trading, and the bank’s director and deputy director were
prosecuted. The prosecution demanded penalty payments of LE 374,000 and
imprisonment of five years.
Orascom Hotels and
Accounting scandal: The parent company of Orascom was alleged to have
Development (2011)
misrepresented its ownership stake in the hotel group as discrepancies were
detected between the firm’s financial disclosures and the shareholders’ register.
Moreover, the chairman of the board was accused of providing misleading financial
statements and manipulating stock prices. Ultimately, the firm settled with the
Egyptian Financial Supervisory Authority (EFSA), the country’s financial
regulator, to avoid prosecution.
8. Examples of accounting regulation:
Income Tax Act
Accounting regulation: The law required all firms to submit financial statements
(1939)
supporting their income tax returns to avoid an ad hoc assessment by the Egyptian
tax authorities. It created additional demand for professional accounting and
auditing services.
Act 4723
Accounting regulation: The act required all public-sector organizations, except
(1966)
financial institutions, to implement a standardized accounting system. The main
goals of the new system were: (1) to provide central (governmental) planners with
all the information needed for planning and control; (2) to link the financial reports
of private enterprises with the national accounts; and (3) to facilitate the collection,
recording, and reporting of accounting data.
Decree 243
Accounting regulation: The Minister of Investment, by decree, implemented 35
(2006)
new national accounting standards known as Egyptian Accounting Standards
(EAS). The EAS were modelled on the existing IFRS standards in an attempt to
harmonize Egyptian accounting with international practice.
The table provides general information on the time period, data sources, search terms, and secondary literature used
in the data collection. An asterisk (*) indicates a premier (business) newspaper outlet in a country; a dollar sign ($)
indicates that the electronic archive does not offer free access, but needs a subscription; E stands for electronic
archive that is accessible through key word search; M stands for archive that requires manual search. The table also
lists a few illustrative examples of corporate scandals and accounting regulations identified in the search.
55
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A8.2
Incidents of Corporate Scandals and Accounting Regulation in Egypt by Decade
Corporate Scandals
Decade
1880
1890
1900
1910
1920
1930
1940
1950
1960
1970
1980
1990
2000
2010
Total
Accounting
0
0
0
0
0
0
0
1
0
0
1
0
0
2
4
Near
Accounting
0
1
0
0
1
0
2
2
1
0
0
0
1
1
9
Accounting Regulation
Other
Total
0
2
2
0
3
6
1
12
3
0
2
0
1
1
33
0
3
2
0
4
6
3
15
4
0
3
0
2
4
46
Accounting
0
0
0
0
0
1
3
3
3
0
1
2
3
0
16
Other
0
0
1
0
1
0
6
5
1
1
2
2
1
1
21
Supranational
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Total
0
0
1
0
1
1
9
8
4
1
3
4
4
1
37
The table reports the number of corporate scandals and accounting regulations by decade and type for Egypt over
the 1888 to 2015 period (N = 121 years). For the empirical analyses, we classify the corporate scandals that we
identified in the data collection as either “accounting scandal”, “near accounting scandal”, or “other scandal” and the
regulatory actions as either “accounting regulation”, “other regulation”, or “supranational regulation.” See Section 2
of the main text for details. If feasible, we measure corporate scandals in the year they are first covered in the
financial press, and accounting regulation in the year it is enacted.
56
APPENDIX
A9.!
CORPORATE SCANDALS AND REGULATION
Finland
A9.1.! Overview
Finland’s recent history is closely tied to Russia and Sweden. Following the Finnish War
(1808-1809) between the Kingdom of Sweden and the Russian Empire, the autonomous Grand
Duchy of Finland was established. The Finnish legislature (the “Diet”) passed the first laws
regulating corporate activity and bankruptcy in 1864 and 1868, respectively. In 1895, the Finnish
Diet established the first comprehensive companies act (The Share Companies Act) that was
modelled largely on German law, and developed contemporaneously with a share companies law
in Sweden that passed a few months later. Still under the rule of imperial Russia, share-issuing
companies needed approval from the Russian controlled Senate of Finland. In 1907, Finland
replaced the Diet with a democratically elected parliament. However, any reform to the Share
Companies Act of 1895 was effectively blocked by tsarist Russia until the abdication of the
Russian Tsar in 1917. The rise to power of the Bolsheviks in Russia following the October
Revolution led to a period of civil war between pro-Russian and anti-Russian forces within
Finland. The victorious anti-Bolshevik regime briefly established a monarchy, but ultimately a
republic was formed and the first presidential elections were held in 1919.
After securing its border with Russia in 1920 by way of the Treaty of Tartu, the Finnish
Parliament resumed its legislative work. In 1925, the Bookkeeping Obligation Act, and in 1928 a
law on the publication of financial statements were issued. The bookkeeping act was revised
several times over the years, while the 1895 company law would remain in force until it was
reformed in 1978. In preparation of Finland joining the European Union (EU) in 1995, Finnish
accounting law was harmonized with the EU directives. As member of the EU, Finland required
firms listed on EU-regulated markets to prepare financial statements in accordance with IFRS
from 2005 onwards.
A9.2.! Data Collection
For scandals, we start the data collection in 1889 with the first digitized issue of the
Helsingin
Sanomat
(https://en.wikipedia.org/wiki/Helsingin_Sanomat),
the
largest
daily
newspaper in Finland. We had to combine three different online archives to form a complete
time-series of the newspaper editions: the digitized collections from the Finnish National Library
57
APPENDIX
CORPORATE SCANDALS AND REGULATION
(1889 to 1910); the Päivälehti Archives (Päivälehden arkisto), which is a special newspaper
library accessible to researchers (1911 to 1989); and the online archive of the newspaper itself
(1990 to 2015). All three archives are accessible through key word search, but the number of hits
differs substantially across data sources, depending on differences in tagging and whether the
archives allow full text search or search the headlines and abstracts only. We included scandals
for which there were multiple mentions in the newspaper as well as scandals identified from
secondary sources.
We relied on a survey of secondary literature for regulatory activities. We identified the
major national laws and the implementation of EU Directives on accounting regulation. One of
our primary sources was the Finlex database (http://www.finlex.fi/en/), an online tool of up-todate legislative and other judicial information that is run by the Finnish Ministry of Justice. Table
A9.1 provides additional details on the data collection procedure.
A9.3.! Data Description
In Figure A9.1 we graphically plot the mentions of “Scandal” and “Regulator” in the
historical archives of the Helsingin Sanomat. The newspaper was founded in 1889 and the time
series covers the years 1890 to 2015. We used the Finnish translations of our broad search terms
as well as some terms that capture the same underlying construct for the analysis. We observe a
dramatic increase in the mentions of the term “Regulator”, particularly in the mid-1970s. The
term “Scandal” is less frequently mentioned in the press. In 1990, there is a clear break in the
time-series, because we had to switch from the library archive to the online archive of the
Helsingin Sanomat, which produced substantially less mentions of the key terms. The correlation
between the two terms is on the order of 70%. This value is lower than what we observe in many
of the other countries.
Table A9.2 reports descriptive statistics on the incidents of corporate scandals and
accounting regulation by decade identified for Finland. The data covers the period 1889 to 2015.
We could identify 16 corporate scandals and 23 regulatory acts. There was only a handful of
scandals before 1970, while about half of them occurred during the most recent 15 years. The
regulatory activity was more evenly distributed over time, but again about half of the regulatory
acts occurred in the last 25 years. The latter period also coincided with the country-specific
implementation of several supranational laws and directives.
58
APPENDIX
CORPORATE SCANDALS AND REGULATION
FIGURE A9.1
Media Mentions of the Terms “Scandal” and “Regulator” from 1890 to 2015 in Finland
687..
:;#'<#*
=">?*#+&$
6827.
!"#$%&'()&$$"*#+,&'%654.(+&(2.67
./012
654.(+&(6437
./134
68...
6431(+&(2.67
640.(+&(2.67
./11.
./151
07.
7..
27.
.
654.
64..
646.
642.
649.
643.
647.
641.
640.
645.
644.
2...
2.6.
The figure plots the yearly number of incidents the terms “scandal” and “regulator” (or the local equivalents) are
mentioned in the business press. We plot the results from searching the Finnish newspaper Helsingin Sanomat over
the period 1890 to 2015. The break in the time-series in 1990 is due to a switch in databases used for the data
collection. We use the terms “scandal” (“skandaali”) and “regulation” (“sääntely”), “company law” (“yhtiölaki”), or
“company supervision” (“yhtiö” in combination with “valvonta”). We also indicate the contemporaneous Pearson
correlation coefficients between the two time-series over the entire period as well as over various sub-periods.
59
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A9.1
Overview of Data Collection Procedure in Finland
1. Earliest year of data collection and time period coverage:
Coverage: 1889 to 2015
Start date: December 19, 1889
2. Data sources, time period used for search, and data accessibility:
-! Helsingin Sanomat* (1889 to 1910); national library digital collections (E):
http://digi.kansalliskirjasto.fi/sanomalehti/search
-! Helsingin Sanomat (1911 to 1989); onsite access to digital collection of the Päivälehti Archives (E):
http://www.paivalehdenarkisto.fi/in-english/
-! Helsingin Sanomat (1990 to 2015); online archive ($; E): http://www.hs.fi/
3. Key search terms and translations into local language (main terms only):
Scandal: Skandaali
Accounting scandal/fraud: Kirjanpitoskandaali, Kirjanpitopetos
Earnings management: Tuloksen ohjaus/manipulointi/hallinta
Regulator: Sääntelijä, Sääntely, Sääntelyviranomainen, Valvontaviranomainen
Accounting regulation: Kirjanpitolaki, Kirjanpidon sääntely
Securities regulation/law: Arvopaperimarkkinalaki, Arvopaperilainsäädäntö, Arvopaperisääntely, Yhtiölaki
4. Special remarks about data collection:
-! We used three different databases to cover the entire time-series of the Helsingin Sanomat newspaper, which
created clear breaks in the number of search results over time (e.g., in 1990).
-! Finland is a rather stable and small country, which might have contributed to the relatively small number of
scandals we could identify.
5. Secondary literature (main resources):
Hyytinen, A., I. Kuosa, and T. Takalo. 2003. Law or finance: evidence from Finland. European Journal of Law
and Economics 16: 59–89.
Näsi, S. 1993. Finland. European Accounting Review 2: 319–328.
Näsi, S., and A. Virtanen. 2003. Chapter 5: Finland. In: Alexander, D., and S. Archer (eds.). European
Accounting Guide (5th ed.). Aspen Publishers: New York, NY: 5.01–5.59.
Näsi, S. 1995. Chapter 6: The history of financial reporting and auditing in Finland. In: Walton, P. (ed.).
European Financial Reporting: A History. Academic Press: Cambridge, MA: 75–89.
6. Research assistant (RA) and local country expert (CE):
CE: Prof. Henry Jarva, Aalto University
RA: Linda Aikala, Aalto University
(Continued)
60
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A9.1—Continued
7. Examples of corporate scandals:
Union Bank of Finland
Near accounting scandal: The director of a local branch of this national bank
(Suomen Yhdyspankki)
embezzled a large amount of money over the course of several years. At the time,
(1912)
the amount corresponded to about 9% of Finland’s yearly budget. The fraud
occurred through falsified bonds and the granting of loans with non-existing
guarantees. The manager was sentenced to 15 years of imprisonment.
Helsinki Metro (1987)
Other scandal: Investigation (and later conviction) against several members of
Helsinki’s metro and municipal committee for taking bribes from the German
company Siemens.
Stora Enso Oyj (2013)
Accounting scandal: The large forestry products and paper manufacturer was
accused of accounting manipulation and wrongful dividend payments to cover
losses from the sale of one of its group companies. The incident led to follow up
investigations by the Finnish Financial Supervisory Authority, but no further
actions were taken.
8. Examples of accounting regulation:
Bookkeeping Act
Accounting regulation: The law instituted mandatory bookkeeping by outlining
(1945)
which firms and on what terms they had to keep accounting records.
Auditing Act
Accounting regulation: The law outlined audit requirements, the process of the
(1994)
audit, details about the audit of financial statements and accounting records, and the
necessary qualifications of the auditors.
Share Companies Act
Other regulation: The law strengthened the legal protection of creditors and
(2006)
minority shareholders and revised the status of small enterprises.
The table provides general information on the time period, data sources, search terms, and secondary literature used
in the data collection. An asterisk (*) indicates a premier (business) newspaper outlet in a country; a dollar sign ($)
indicates that the electronic archive does not offer free access, but needs a subscription; E stands for electronic
archive that is accessible through key word search. The table also lists a few illustrative examples of corporate
scandals and accounting regulations identified in the search.
61
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A9.2
Incidents of Corporate Scandals and Accounting Regulation in Finland by Decade
Corporate Scandals
Decade
1880
1890
1900
1910
1920
1930
1940
1950
1960
1970
1980
1990
2000
2010
Total
Accounting
0
0
0
0
0
0
0
0
0
0
0
0
1
2
3
Near
Accounting
0
0
0
1
0
0
1
0
0
2
0
0
1
1
6
Accounting Regulation
Other
Total
0
0
0
0
0
0
0
1
0
0
2
0
3
1
7
0
0
0
1
0
0
1
1
0
2
2
0
5
4
16
Accounting
0
0
0
0
3
0
1
0
1
0
0
2
2
0
9
Other
1
1
0
0
0
0
0
0
0
0
2
2
4
1
11
Supranational
0
0
0
0
0
0
0
0
0
0
0
0
3
0
3
Total
1
1
0
0
3
0
1
0
1
0
2
4
9
1
23
The table reports the number of corporate scandals and accounting regulations by decade and type for Finland over
the 1889 to 2015 period (N = 127 years). For the empirical analyses, we classify the corporate scandals that we
identified in the data collection as either “accounting scandal”, “near accounting scandal”, or “other scandal” and the
regulatory actions as either “accounting regulation”, “other regulation”, or “supranational regulation.” See Section 2
of the main text for details. If feasible, we measure corporate scandals in the year they are first covered in the
financial press, and accounting regulation in the year it is enacted.
62
APPENDIX
CORPORATE SCANDALS AND REGULATION
A10.! France
A10.1.!Overview
The history of modern France begins with the French Revolution of 1789 when France
overturned its monarchy and established a Republic. Following a period of violence and political
turmoil, Napoleon Bonaparte was named First Consul and eventually Emperor. Under his tenure,
France established the Civil Code (1804) and the Commercial Code (1807). These two legal
frameworks quickly spread by force of arms and annexation during the Napoleonic Wars and had
a considerable impact on the legal systems across continental Europe.
After Napoleon’s defeat in 1815, the monarchy was re-established, but overthrown shortly
thereafter. Under Napoleon III, France temporarily regained its strength in Europe and built one
of the largest colonial empires, second only to the British Empire. The colonial expansion
continued during the Third Republic (1870-1940). The turn of the century, known as the Belle
Époque, marked a period of economic prosperity and numerous technological, scientific, and
cultural innovations. Following World War I, France like much of Europe went through a period
of political instability and economic crisis. Nazi Germany invaded and occupied the country in
1940. After World War II, a period of extensive reconstruction followed, and the country went
through a painful process of decolonization. In 1951, France was one of the founding members
of the European Coal and Steel Community, the precursor to the European Economic
Community (EEC) and the European Union (EU).
The French have a long tradition of granting strong centralized power to the state and the
executive branch. For decades, family-based firms dominated the economy, which slowed the
adoption and diffusion of the limited liability company as the primary conduit of economic
activity, and limited the role of stock exchanges as a means of raising external capital. One of the
driving factors behind accounting regulation was to bolster tax revenues in times of war. The
adoption of the Commercial Code and several major revisions thereof all happened during
imperial expansions or international conflicts. Under the French code law system, the form and
content of financial accounting typically was prescribed by law. In 1983, France enacted a new
Accounting Law which implemented the EEC’s Fourth Directive into the French commercial
code. It also introduced the notion of “true and fair view” to represent a firm’s financial position.
In 1998, the French Accounting Regulation Committee (Comité de réglementation comptable,
63
APPENDIX
CORPORATE SCANDALS AND REGULATION
CRC) was established as the body responsible for the preparation of general or sector-specific
accounting prescriptions. As a member of the EU, France required firms listed on EU-regulated
markets to prepare their financial statements in accordance with IFRS from 2005 onwards. In
2010, the French Authority for Accounting Standards (Autorité des normes comptables) was
created as the main regulatory body in France to define accounting standards in accordance with
French GAAP and issue position statements on topics related to IFRS.
A10.2.!Data Collection
We start our data collection in 1826 with the first issue of Le Figaro, the oldest national
daily newspaper in France (https://en.wikipedia.org/wiki/Le_Figaro). In the years until 1867, the
newspaper is only available on digitized microfilm and not easily accessible for keyword search.
We identified a small number of scandals during this period. The number increases, once we are
able to use keyword search in the archive of Le Figaro. We complemented this early period with
searches in the Journal des Finances, a French weekly financial outlet. From 1945 onwards, we
primarily used the online archive of Le Monde, one of France’s preeminent outlets for business
news after World War II (https://en.wikipedia.org/wiki/Le_Monde). The archive allows for
keyword searches, and we could identify numerous corporate scandals. We complemented the
most recent years with searches of Les Échos, a French daily financial newspaper. To evaluate
the materiality of the scandals, we checked whether they were mentioned multiple times in the
newspapers or identified from secondary sources (including foreign newspapers).
We relied on a survey of secondary literature for regulatory activity. We identified the major
national laws and EU Directives on accounting regulation. We also surveyed select institutions
that helped to improve accounting regulation in France like the CRC. For instance, the CRC
developed standards specifying accounting rules for consolidated financial statements. Table
A10.1 provides additional details on the data collection procedure.
A10.3.!Data Description
In Figure A10.1 we graphically plot the mentions of “Scandal” and “Regulator” in the
historical archives of Le Figaro and Le Monde. The time series covers the years 1867 to 2015.
We used the French translations of our broad search terms as well as some terms that capture the
same underlying construct for the analysis. In the period before World War II, the mentions of
64
APPENDIX
CORPORATE SCANDALS AND REGULATION
both terms hover around 150 per year. While the correlation seems fairly week in the 19th
century, the two time-series move very much in sync from 1900 to 1939. After World War II, the
mentions of the two terms steadily increase and reach new highs of about 1,500 mentions in
2001 and again in 2013. The correlation between the two terms is 90% over the entire period.
Table A10.2 reports descriptive statistics on the incidents of corporate scandals and
accounting regulation by decade identified for France. The data covers the period 1826 to 2015.
We could identify 131 corporate scandals and 57 regulatory acts. While there was an early peak
in accounting scandals around 1900 and again around 1930, most scandals occurred after 1967.
The regulatory activity was low during the first half of the sample, but steadily increased from
1910 on. The most recent decades coincided with the country-specific implementation of several
supranational laws and directives.
65
APPENDIX
CORPORATE SCANDALS AND REGULATION
FIGURE A10.1
Media Mentions of the Terms “Scandal” and “Regulator” from 1867 to 2015 in France
792..
:;#'<#*
=">?*#+&$
7912.
!"#$%&'()&$$"*#+,&'%7543(+&(1.72
./0.1
7543(+&(7080
./234
79...
7064(+&(1.72
703.(+&(1.72
./556
./330
32.
2..
12.
.
7542
7532
7552
7502
70.2
7072
7012
7082
7062
7022
7042
7032
7052
7002
1..2
1.72
The figure plots the yearly number of incidents the terms “scandal” and “regulator” (or the local equivalents) are
mentioned in the business press. We plot the results from searching the French newspapers Le Figaro (1867 to
1939) and Le Monde (1946 to 2015). We use the terms “scandal” (“scandale”) and “regulator” (“régulateur”,
“législateur”, and “réglementation”). We also indicate the contemporaneous Pearson correlation coefficients
between the two time-series over the entire period as well as over various sub-periods.
66
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A10.1
Overview of Data Collection Procedure in France
1. Earliest year of data collection and time period coverage:
Coverage: 1826 to 2015 (without 1940 to 1945)
Start date: April 22, 1826
2. Data sources, time period used for search, and data accessibility:
-! Le Figaro (1826 to 1942); online archive through French National Library (E): http://gallica.bnf.fr
-! Journal des Finances (1870 to 1938); online archive through French National Library (E): http://gallica.bnf.fr
-! Le Monde* (1945 to 2015); online archive ($; E): http://www.lemonde.fr
-! Les Échos (1997 to 2015); online archive through Factiva
3. Key search terms and translations into local language (main terms only):
Scandal: scandale, affaire
Accounting scandal/fraud: scandale comptable, affaire comptable, fraude comptable, escroquerie comptable,
malversation comptable, manipulation des comptes, trucage dans les comptes, pratique financière illégale
Earnings management: gestion du résultat comptable, gestion des bénéfices, manipulation des résultats,
falsification des résultats, maquillage des comptes, acrobatie comptable, jonglerie comptable
Regulator: régulateur, législateur, réforme, autorité de surveillance, autorité des marchés financiers
Accounting regulation: réglementation comptable, loi comptable, règle(s) comptable(s), norme(s) comptable(s),
réglementation sur la divulgation, divulgation réglementaire, autorisation de divulgation
Securities regulation/law: réglementation des marchés financiers, réglementation des bourses de valeurs,
réglementation des marchés boursiers, réglementation des valeurs mobilières, droit des bourses de valeurs,
droit des marchés boursiers, droit des valeurs mobilières
4. Special remarks about data collection:
-! The publication frequency of Le Figaro varied significantly over time. Initially, the newspaper was published
on an irregular basis (1826-1853), in weekly intervals (1854-1855), and twice per week (1856-1866), before
turning into a daily newspaper from 1867 on.
-! No suitable newspaper coverage during World War II.
-! The very first issue of Le Monde appeared on December 18, 1944. We included this outlet in our media
analysis from 1946 onwards.
-! The search engine of Le Monde currently produces nearly three times fewer results in 2006 compared to the
adjacent years (for all search terms). Inquiries with the newspaper’s customer service could not resolve the
issue. Thus, to make the number comparable for the time-series analysis of media mentions, we multiply the
2006 observations by three.
5. Secondary literature (main resources):
Bensadon, D. 2011. The accounting regulation in the French context: the case of corporate groups (1921-1943).
Accounting History Review Conference, Cardiff, UK.
Bocqueraz, C. 2010. Chapter 2: France. In: Previts, G., P. Walton, and P. Wolnizer (eds.). A Global History of
Accounting, Financial Reporting and Public Policy: Europe. Emerald Group Publishing: Bingley, UK: 37–57.
Lande, E. 1997. A comparative study of the normalization process in France and in Spain. In: Flower, J., and C.
Lefebvre (eds.). Comparative Studies in Accounting Regulation in Europe. Acco Publishers: Leuven, BE:
159–267.
Lemarchand, Y., and N. Praquin. 2005. Falsifications et manipulations comptables. La mesure du profit, un
enjeu social (1856-1914). Comptabilité - Contrôle - Audit 11 (Special issue): 15–33.
Mikol, A. 1993. France. European Accounting Review 2: 329–334.
Mikol, A. 1995. The history of financial reporting in France. In: Walton, P. (ed.). European Financial
Reporting: A History. Academic Press: Cambridge, MA: 91–122.
Stolowy, H. 2002. Change in international accounting harmonisation: the French viewpoint. In: Zambon, S.
(ed.). Informazione societaria e nuovi processi di armonizzazione internazionale. Il Mulino: Bologna, IT:
185–192.
Thiveaud, J-M. 1997. Crises et scandales financiers en France sous la Troisième République. Revue
d'Économie Financière 41: 25–53.
6. Research assistant (RA) and local country expert (CE):
RA: Andreea Moraru-Arfire, University of Neuchatel CE: Prof. Hervé Stolowy, HEC Paris
(Continued)
67
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A10.1—Continued
7. Examples of corporate scandals:
Affaire Pereire (1860)
Accounting scandal: Several shareholders filed a complaint against the Compagnie
Immobilière de Paris, founded by the Pereire brothers, for misleading accounting
numbers. The follow-up investigation revealed that the firm indeed had inflated
earnings and misreported deferred sales to mislead investors.
Crédit Agricole (1967)
Near accounting scandal: The CEO and chief of legal affairs of the local branch of
the bank in Arles were arrested and charged with fraud, breach of trust, issuing
checks without provisions, and the forgery of documents. The scam involved the
wrongful issuance of loans for other than agricultural purposes without properly
documenting these transactions in the accounting system.
LVMH (2013)
Accounting scandal: The French stock market authority AMF sanctioned the
company to pay a penalty of EUR 8 million for misinforming investors. LVMH did
not properly disclose an equity stake in one of its rival companies, Hermès, that it
had amassed over time.
8. Examples of accounting regulation:
Law of July 15
Accounting regulation: Together with the Law of July 31, 1917, the so-called
(1914)
Caillaux laws transformed the French tax system, dating back to the revolution of
1789. The laws introduced a tax on industrial and commercial profits. Taxable
profit was defined as “profit after deduction of all expenses, including the rent
value of the buildings used in the business and depreciation according to the custom
of each type of industry or trade.”
Law of March 15
Other regulation: The purpose of the law was to improve investor protection,
(1973)
particularly during takeover events. It allowed minority shareholders to sell off their
shares under similar conditions as major shareholders.
Autorité des normes
Accounting regulation: The French Finance Minister announced the creation of the
comptables (2010)
Autorité des normes comptables (ANC), the French Authority of accounting
standards. This authority emerged from the combination of two regulatory bodies:
the National Accounting Board (Conseil national de la comptabilité) and the
Accounting Regulation Committee (Comité de réglementation comptable). Among
other things, the ANC is responsible for the regulation of corporate accounting and
contributes to the ongoing harmonization efforts at the European level.
The table provides general information on the time period, data sources, search terms, and secondary literature used
in the data collection. An asterisk (*) indicates a premier (business) newspaper outlet in a country; a dollar sign ($)
indicates that the electronic archive does not offer free access, but needs a subscription; E stands for electronic
archive that is accessible through key word search. The table also lists a few illustrative examples of corporate
scandals and accounting regulations identified in the search.
68
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A10.2
Incidents of Corporate Scandals and Accounting Regulation in France by Decade
Corporate Scandals
Decade
1820
1830
1840
1850
1860
1870
1880
1890
1900
1910
1920
1930
1940
1950
1960
1970
1980
1990
2000
2010
Total
Accounting
0
0
0
0
3
0
1
4
5
1
3
4
0
1
4
0
3
5
9
5
48
Near
Accounting
0
0
0
0
1
1
0
1
2
1
1
1
0
3
3
7
3
7
4
0
35
Accounting Regulation
Other
Total
0
0
0
0
0
1
3
4
4
5
2
8
1
1
0
3
4
4
5
3
48
0
0
0
0
4
2
4
9
11
7
6
13
1
5
7
10
10
16
18
8
131
Accounting
0
0
0
0
1
0
1
0
0
2
5
2
3
1
3
1
2
5
6
2
34
Other
0
0
0
1
0
0
0
3
0
1
1
2
0
1
1
1
0
3
1
0
15
Supranational
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
2
0
4
2
8
Total
0
0
0
1
1
0
1
3
0
3
6
4
3
2
4
2
4
8
11
4
57
The table reports the number of corporate scandals and accounting regulations by decade and type for France over
the 1826 to 2015 period (N = 184 years). For the empirical analyses, we classify the corporate scandals that we
identified in the data collection as either “accounting scandal”, “near accounting scandal”, or “other scandal” and the
regulatory actions as either “accounting regulation”, “other regulation”, or “supranational regulation.” See Section 2
of the main text for details. If feasible, we measure corporate scandals in the year they are first covered in the
financial press, and accounting regulation in the year it is enacted.
69
APPENDIX
CORPORATE SCANDALS AND REGULATION
A11.! Germany
A11.1.! Overview
Until the foundation of the German Empire in 1871, Germany consisted of many sovereign
states with changing affiliations and collaborations. The economy was largely agrarian, with
some urban trade centers. With the beginning of the 19th century Germany began a phase of
rapid economic growth and modernization. This period of economic development ended with the
onset of World War I. The interwar period between 1919 and 1939 was marked by the
establishment of the Weimar republic, hyper-inflation in the early 1920s, debt fueled prosperity
between 1923 and 1929, and the economic collapse resulting in the great depression of 1929.
Following World War II and the separation into East and West, West Germany experienced
substantial economic recovery in the 1950s and 1960s with the help of the Marshall Plan. After
reunification in 1990, Germany became the largest individual economy in the European Union.
While German economic history is characterized by dramatic change and disruption due to
conflict, the history of German accounting regulation and practice has been more notable for its
continuity. The German legislature sets financial accounting and reporting standards as a result
of their statute law system. The Prussian Civil Code of 1794 was modeled after the French Code
Savary. In 1861, the General German Commercial Code followed. Along with the Stock
Corporation Act (1870), the Cooperatives Act (1889), and the Limited Liability Companies Act
(1892) a comprehensive set of rules governed the valuation, presentation, and disclosure of
financial information for decades. The Commercial Code of 1985 consolidated these various
rules and implemented the 4th and 7th EEC Directives into German national law.
A11.2.!Data Collection
We start our data collection in 1805 with the first digitized issue of the Hamburger
Börsenhalle, a trade journal based in the sovereign city of Hamburg. The archive allows for
keyword searches, but we did not find any major scandals during the time period July 7, 1805, to
June 30, 1866. Most of the keyword mentions led to negligible episodes of fraud, involving small
businesses and local merchants. We continued our search with the digitized and keyword searchenabled Berliner Börsenzeitung between February 1, 1872, and December 30, 1930. This source
let us identify several scandals during the period.
70
APPENDIX
CORPORATE SCANDALS AND REGULATION
In the post-war period, we conducted a keyword search based on the digitized archive of the
Frankfurter Allgemeine Zeitung (https://en.wikipedia.org/wiki/Frankfurter_Allgemeine_Zeitung),
one of Germany’s preeminent outlets for business news. We only included scandals for which
there were multiple mentions in the newspaper as well as scandals identified from secondary
sources. In addition, we relied on a survey of secondary literature and on experts’ input in the
area of regulation. We identified the major national laws and implementation of EU Directives
on accounting regulation. We also surveyed select institutions that helped to improve accounting
regulation in Germany. For example, the Accounting Standards Committee of Germany develops
standards that specify accounting rules for consolidated financial statements (e.g., on the form
and content of management reports). Although these standards are not legally binding, they are
considered quasi-mandatory. However, because most of these standards reflect a gradual
refinement of existing accounting practices, we did not include them in our database. Table
A11.1 provides additional details on the data collection procedure.
A11.3.!Data Description
In Figure A11.1 we graphically plot the mentions of “Scandal” and “Regulator” in the
historical archives of the Frankfurter Allgemeine Zeitung. The newspaper was founded in 1949
and therefore the time series covers the years 1949 to 2015. We used the German translations of
our broad search terms as well as some terms that capture the same underlying construct for the
analysis. We observe a dramatic increase in the mentions of both terms, in particular beginning
in the mid-1990s, with “Scandal” generally outpacing “Regulator.” The two terms are highly
correlated, and the correlation coefficient exceeds 93% over the entire period as well as over the
latter half of the period.
Table A11.2 reports descriptive statistics on the incidents of corporate scandals and
accounting regulation by decade identified for Germany. The data covers the period 1805 to
2015. We were able to identify 86 corporate scandals and 50 regulatory acts. While there was an
early peak in accounting scandals around 1900, the numbers increased over the last 25 years. The
regulatory activity was more evenly distributed over time with 13 regulatory acts before 1900,
but also showed a peak in the early 2000s. This period coincided with the country-specific
implementation of several supranational directives and laws.
71
APPENDIX
CORPORATE SCANDALS AND REGULATION
FIGURE A11.1
Media Mentions of the Terms “Scandal” and “Regulator” from 1949 to 2015 in Germany
175..(
:;#'<#*(
17...(
475..(
=">?*#+&$(
!"#$%&'()&$$"*#+,&'%3020(+&(4.35
./010
306.(+&(4.35
./020
47...(
375..(
37...(
5..(
.(
3025(
3055(
3085(
3065(
3095(
3005(
4..5(
4.35(
The figure plots the yearly number of incidents the terms “scandal” and “regulator” (or the local equivalents) are
mentioned in the business press. We plot the results from searching the German newspaper Frankfurter Allgemeine
Zeitung over the period 1949 to 2015. We use the terms “scandal” (“Skandal”, “Affäre”, and “Eklat”) and
“regulator” (“Regulierer”, “Regulierung”, and “Regulierungsbehörde”), “company law” (i.e., “Aktienrecht” and
“Gesetz” in combination with “Unternehmen”, “Unternehmung”, or “Firma”) or “exchange supervisory body”
(“Börsenaufsicht” or “Börsenaufsichtsbehörde”). We also indicate the contemporaneous Pearson correlation
coefficients between the two time-series over the entire period as well as over various sub-periods.
72
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A11.1
Overview of Data Collection Procedure in Germany
1. Earliest year of data collection and time period coverage:
Coverage: 1805 to 2015 (without 1939 to 1945)
Start date: July 7, 1805
2. Data sources, time period used for search, and data accessibility:
-! Hamburger Börsen-Halle (1805 to 1866); online archive through library (E):
http://www.theeuropeanlibrary.org
-! Berliner Börsen-Zeitung (1872 to 1930); online archive through library (E):
http://www.theeuropeanlibrary.org
-! Frankfurter Allgemeine Zeitung* (1949 to 2015); online archive ($; E): www.faz-archiv.de
3. Key search terms and translations into local language (main terms only):
Scandal: Skandal, Affäre, Eklat (including different spellings, e.g., Affaire, Scandal)
Accounting scandal/fraud: Bilanzskandal, Bilanzfälschung, Bilanzbetrug, Bilanzdelikt, Bilanzverschleierung,
Bilanzmanipulation, Bücherfälschung
Earnings management: Ergebnissteuerung, Ergebnismanipulation, Bilanzpolitik, Bilanzkosmetik, Bilanztricks,
Gewinnsteuerung, Gewinnmanipulation, Scheingewinn
Regulator: Regulierer, Regulierungsbehörde, Behörde, Börsenaufsicht, Börsenaufsichtsbehörde
Accounting regulation: Bilanzierungsvorschriften, Rechnungslegungsvorschrift, Rechnungslegungsnorm,
Buchhaltungsvorschriften, Bilanzreform, Rechnungslegungsregel
Securities regulation/law: Wertpapierregulierung, Wertpapierrecht, Handelsrecht, Börsenrecht, Aktienrecht,
Kapitalmarktrecht, Aktiengesetz, Börsenordnung, Aktiennovelle
4. Special remarks about data collection:
-! Before the unification of Germany and the founding of the German Empire in 1871, Germany consisted of a
loose confederation of 39 sovereign states (one of which was the Free Imperial City of Hamburg).
-! No suitable newspaper coverage during World War II.
-! Even though the Hamburger Börsen-Halle and the Berliner Börsen-Zeitung were available in electronic
format, the searchability and readability of these documents is not comparable to a full-text searchable
database with Boolean operators.
-! We include the online outlet of the Frankfurter Allgemeine Zeitung in the search.
5. Secondary literature (main resources):
Ballwieser, W. 2010. Chapter 3: Germany. In: Previts, G., P. Walton, and P. Wolnizer (eds.). A Global History
of Accounting, Financial Reporting and Public Policy: Europe. Emerald Group Publishing: Bingley, UK:
59–88.
Beigel, R. 1908. Theorie und Praxis der Buchführungs- und Bilanz-Revision. Gerhard Kühtmann: Dresden.
Busse von Colbe, W. 1996. Accounting and the business economics tradition in Germany. European
Accounting Review 5: 413–434.
Franks, J., C. Mayer, and H. Wagner. 2006. The origins of the German corporation – finance, ownership and
control. Review of Finance 10: 537–585.
Fülbier, R., and M. Klein. 2015. Balancing past and present: The impact of accounting internationalisation on
German accounting regulations. Accounting History 20: 342–374.
Jones, M. 2011. Creative Accounting, Fraud and International Accounting Scandals. Wiley: Hoboken, NJ.
Schröer, T. 1993. Germany. European Accounting Review 2: 335–345.
6. Research assistant (RA) and local country expert (CE):
CE: Professor Jens Günther, Ruhr-University Bochum
RA: Florian Klassmann, University of Münster
(Continued)
73
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A11.1—Continued
7. Examples of corporate scandals:
Leipziger Bank (1901)
Accounting scandal: Hid a loan to another financial institution valued at over 80
million Deutsche Mark; when the loan defaulted, the bank had to declare
bankruptcy.
Balsam (1994)
Accounting scandal: Sale of fictitious receivables to a factoring firm.
Comroad (2002)
Accounting scandal: Prepared false financial statements with overstated sales
revenue based on fictitious transactions with third party in Hong Kong.
8. Examples of accounting regulation:
Prussian Joint-Stock Act Accounting regulation: Introduction of the charter system including the advent of
(1843)
limited liability for public stock corporations in the Kingdom of Prussia.
Commercial Code
Accounting regulation: The law set basic accounting rules for all forms of business
(1897)
organizations and introduced the principles of proper bookkeeping (“Grundsätze
ordnungsmäßiger Buchhaltung”).
Stock Corporation Act
Accounting regulation: Introduction of the requirement to prepare and publish
(1965)
group accounts for joint stock corporations.
The table provides general information on the time period, data sources, search terms, and secondary literature used
in the data collection. An asterisk (*) indicates a premier (business) newspaper outlet in a country; a dollar sign ($)
indicates that the electronic archive does not offer free access, but needs a subscription; E stands for electronic
archive that is accessible through key word search. The table also lists a few illustrative examples of corporate
scandals and accounting regulations identified in the search.
74
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A11.2
Incidents of Corporate Scandals and Accounting Regulation in Germany by Decade
Corporate Scandals
Decade
1800
1810
1820
1830
1840
1850
1860
1870
1880
1890
1900
1910
1920
1930
1940
1950
1960
1970
1980
1990
2000
2010
Total
Accounting
0
0
0
0
0
0
0
0
0
4
8
1
3
1
0
1
1
4
2
16
19
4
64
Near
Accounting
0
0
0
0
0
0
0
1
1
0
2
1
0
1
0
0
0
0
0
0
1
0
7
Accounting Regulation
Other
Total
0
0
0
0
0
0
0
2
0
2
0
0
1
0
0
0
0
1
2
1
5
1
15
0
0
0
0
0
0
0
3
1
6
10
2
4
2
0
1
1
5
4
17
25
5
86
Accounting
0
0
0
0
1
1
2
1
2
2
0
0
0
3
0
0
2
0
0
2
7
0
23
Other
0
0
0
0
0
0
1
0
0
2
0
0
2
2
1
1
1
0
0
0
6
0
16
Supranational
1
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
3
0
4
3
11
Total
1
0
0
0
1
1
3
1
2
4
0
0
2
5
1
1
3
0
3
2
17
3
50
The table reports the number of corporate scandals and accounting regulations by decade and type for Germany over
the 1805 to 2015 period (N = 204 years). For the empirical analyses, we classify the corporate scandals that we
identified in the data collection as either “accounting scandal”, “near accounting scandal”, or “other scandal” and the
regulatory actions as either “accounting regulation”, “other regulation”, or “supranational regulation.” See Section 2
of the main text for details. If feasible, we measure corporate scandals in the year they are first covered in the
financial press, and accounting regulation in the year it is enacted.
75
APPENDIX
CORPORATE SCANDALS AND REGULATION
A12.! Greece
A12.1.!Overview
The history of modern Greece begins with the war of independence from the Ottoman
Empire (1821 to 1832). Following this war, many of Greece’s founding laws were based on
French law, including the French Commercial Code, which was adopted in 1835. A lack of
political stability led Britain, France, and Russia to install a monarchy. In the years that followed,
ethnic allegiances and unresolved territorial claims gave rise to a series of wars (in 1851, 1878,
1897, and 1912-1913). Immediately after World War I, the Greco-Turkish War broke out (19191922). In 1924, a parliamentary system was put in place, but following years of political turmoil,
economic crises, and the rise of the Greek Communist Party, a fascist military regime took over
(1936-1941). After the occupation by Nazi Germany during World War II, the communist-led
resistance rose to power, but only to engage in a civil war with right-wing military forces. The
struggle for control between military and pro-democratic/pro-communist parties remained a
defining feature of Greek politics until in 1974 democratic institutions finally took a hold.
Influenced by the French, the limited liability company appeared for the first time in Greece
around 1822, and was formally incorporated into Greek law in 1835. Most limited liability
companies have been and continue to be family-owned businesses that adopted this legal form
for tax purposes or reasons other than raising external capital. The Athens Stock Exchange was
founded in 1876. In 1920, basic accounting rules and provisions regarding annual financial
statements and the appropriation of profits were introduced into company law. The focus of
many of the early accounting laws was taxation (e.g., the Tax Code of 1952). Attempts to create
a Greek Accounting Plan began in the early 1950s. However, it was not until after the downfall
of the monarchy and military regime, and Greece’s return to democratic institutions that the issue
of comprehensive accounting legislation made it onto the political agenda. This was also the time
when the discussions of joining the European Economic Community (EEC) began. The Greek
General Chart of Accounts was adopted in 1980, first on a voluntary basis, but shortly thereafter
it was made compulsory for all firms. After Greece had joined the EEC, company laws were
amended to comply with EEC (and later EU) directives.
76
APPENDIX
CORPORATE SCANDALS AND REGULATION
A12.2.!Data Collection
The data collection starts in 1830, the year modern Greece was founded. Before 1896, we
relied on secondary literature and Google-based web searches due to a lack of digitized primary
source materials. When we identified a scandal during these years, we confirmed the date and
circumstances of the event using newspaper microfilms. For the period from 1896 to 1983, we
used the digitized archives of the National Library of Greece that cover several daily newspapers
and magazines. The newspaper with the longest coverage in those archives (1896 to 1969) is
Empros, which we therefore employed as primary data source for this period. Between 1983 and
1995, we again relied on secondary literature and then confirmed the episodes of scandals using
microfilms. For the most recent period starting in the year 1996, we used the electronic archive
of Naftemporiki (https://en.wikipedia.org/wiki/Naftemporiki), a leading business newspaper in
Greece. During these latter years, we only included scandals for which there were multiple
mentions in the newspaper or which we could identify through secondary sources. We explicitly
excluded scandals involving corruption of state officials and politicians by firms that attempted
to obtain government contracts or other preferential treatments.
We identified regulatory changes through a survey of the secondary literature and Google
searches. Once identified, we confirmed each event with the corresponding source material
including laws, presidential decrees, and codes. One of our primary sources was the website of
the National Printing House (http://www.et.gr), which is a public service for the dissemination
of Greek law. We include significant changes to the tax code, as Greek law prescribes book-tax
conformity. Table A12.1 provides additional details on the data collection procedure.
A12.3.!Data Description
In Figure A12.1 we graphically plot the mentions of “Scandal” and “Regulator” in the
historical archives of the two newspapers Empros (upper panel) and Naftemporiki (lower panel).
We break the time series into two parts, because the data sources are not necessarily compatible
with each other. We used the Greek translations of our broad search terms as well as some terms
that capture the same underlying construct for the analysis. In the upper panel (1896 to 1969), the
mentions of regulator outweigh the mentions of scandal. We observe several spikes for regulator
and the correlation between the two time-series is relatively low (43%). In the lower panel (1996
77
APPENDIX
CORPORATE SCANDALS AND REGULATION
to 2015), the level of media mentions for both terms and their correlation is substantially higher
(82%). The mentions of “Regulator” continue to outpace “Scandal.”
Table A12.2 reports descriptive statistics on the incidents of corporate scandals and
accounting regulation by decade identified for Greece. The data covers the period 1830 to 2015
(with gaps from 1936 to 1944 and 1967 to 1974). We could identify 32 corporate scandals and
40 regulatory acts. The number of pure accounting scandals reported in the press is very low.
However, there are quite a few near accounting scandals and other scandals, particularly during
the last 25 years. The regulatory activity shows a similar pattern. We identified only 8 regulatory
acts before 1940, but more than 20 after 1980. The last 15 years of the sample period coincided
with the country-specific implementation of several supranational laws and directives.
78
APPENDIX
CORPORATE SCANDALS AND REGULATION
FIGURE A12.1
Media Mentions of the Terms “Scandal” and “Regulator” from 1896 to 2015 in Greece
6..
9:#';#*
<"=>*#+&$
2..
!"#$%&'()&$$"*#+,&'%5016(+&(4.52
./012
5016(+&(5161
./342
3..
7..
4..
5..
.
501.
51..
515.
514.
517.
513.
512.
516.
518.
4?...
9:#';#*
<"=>*#+&$
5?2..
!"#$%&'()&$$"*#+,&'5116(+&(4.52
./051
5?...
2..
.
5112
4...
4..2
4.5.
4.52
The figure plots the yearly number of incidents the terms “scandal” and “regulator” (or the local equivalents) are
mentioned in the business press. We plot the results from searching the Greek newspapers Empros (1896 to 1969;
upper panel) and Naftemporiki (1996 to 2015; lower panel). We use the terms “scandal” (“!"#$%&'(”) and
“regulator” (“)*+µ,-./0” and “1*+µ,-.,"/ &12/”). We also indicate the contemporaneous Pearson correlation
coefficients between the two time-series over the entire period as well as over various sub-periods.
79
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A12.1
Overview of Data Collection Procedure in Greece
1. Earliest year of data collection and time period coverage:
Coverage: 1830 to 2015 (without 1936-1944, 1967-1974)
Start date: February 3, 1830
2. Data sources, time period used for search, and data accessibility:
Period 1830 to 1966:
-! Empros (1896 to 1930; 1945 to 1966); online archive through library (E): http://efimeris.nlg.gr/ns/main.html
-! Other newspaper sources used: Eleftheria (E; 1945 to 1966); Aion (M; 1838 to 1891); Acropolis (M; 1883 to
1935); To Asty (M; 1885 to 1907); various (M; 1830 to 1936); online access to newspaper microfilms
through the library of the Greek Parliament: http://catalog.parliament.gr/hipres/help/null/horizon/digital.pdf
Period 1974 to 2015:
-! Naftemporiki* (1996 to 2015); online archive through subscription (E, $):
http://www.naftemporiki.gr/premiumservices/archive!
-! Other newspaper sources used: To Vima (E; 1997 to 2015; http://www.tovima.gr/search); Imerisia (E; 2002
to 2015; http://www.imerisia.gr/default.asp)!
3. Key search terms and translations into local language (main terms only):
Scandal: !"#$%&'(
Accounting scandal/fraud: 3(4,-.,"5 -"#$%&'(, 3(4,-.,"/ &6#.7
Earnings management: 8,&29:1,-7 "91%;$, 29,1,-µ50 "91%;$
Regulator: )*+µ,-./0, 1*+µ,-.,"/ &12/
Accounting regulation: 3(4,-.,"(: "&$5$90
Securities regulation/law: <&$5$90 '9,.(*14:&0 217µ&.&4(1;$/"9=&'&,&4(1;$, "&$5$90 691: 219(41#=>$,
?(µ(+9-:&/?5µ(0 '9,.(*14:&0 217µ&.&4(1;$/"9=&'&,&4(1;$, $5µ(,/$(µ(+9-:& 691: 219(41#=>$
4. Special remarks about data collection:
-! No electronically searchable digitized archives were available for the periods 1830-1895 and 1931-1935. For
those periods, we identified incidents of scandals from the secondary literature and then confirmed them
through searches of the microfilmed copies of the newspapers.
-! No suitable newspaper coverage during military dictatorships (1936-1941 and 1967-1974) and during Nazi
occupation in World War II (1941-1944).
-! During the period 1975 to 1995, we relied on secondary sources (e.g., books and Google searches) to identify
cases of scandals.
5. Secondary literature (main resources):
Ballas, A., and D. Hevas. 2009. Financial Accounting. Benou Publications: Athens [in Greek].
Caramanis, C., and E. Dedoulis. 2011. Accounting and auditing practices. In: Prouska, R., and M. Kapsali
(eds.). Business and Management Practices In Greece: A Comparative Context. Palgrave Macmillan:
London, UK: 236–255.
Hatzioannou I., and N. Sifakis. 1921. Panhellenic Album of National Centenary 1821-1921 – Vol. 1 Economics.
Sifakis-Hatzioannou Co.: Athens [in Greek].
Kontos, G., M. Krambia-Kapardis, and N. Milonas. 2011. Creative accounting and fraud in Greece. In: Jones
M. (ed.). Creative Accounting, Fraud and International Accounting Scandals. John Wiley & Sons: West
Sussex, UK: 211–232.
Markouli-Bontioti, A. 2008. The creation and development of the French mining company of Lavrion marks
new developments in the economic and industrial sector of Greek society of the 19th and 20th centuries. PhD
Thesis: National Technical University of Greece [In Greek].
Neal, D. 1997. Locating accounting regulation in Greece. In: Flower, J., and C. Lefebvre (eds.). Comparative
Studies in Accounting Regulation in Europe. Acco Publishers: Leuven, BE: 127–157.
Siatras, I., and E. Michalopoulou. 2001. Athens Stock Exchange 125 years. Publisher Athens SE: Athens.
6. Research assistant (RA) and local country expert (CE):
CE: Dr. Annita Florou, King’s College London
RA: Christos Grambovas
(Continued)
80
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A12.1—Continued
7. Examples of corporate scandals:
Pistotiki Credit Bank
Accounting scandal: The bank deferred to publish financial statements to hide large
(1893)
capital losses from the public that would have required management to call for a
shareholders’ meeting. Once uncovered, share prices started to drop dramatically,
and eventually the bank collapsed.
Pyrkal (1986)
Other scandal: The Greek defence contractor Pyrkal engaged in several fraudulent
transactions which included the purchase of outdated material (e.g., shipyards) and
the sale of weapons systems to the Greek government at inflated prices.
Aspis Group (2009)
Accounting scandal: The group’s audit report identified “significant accounting
mischiefs” and “abnormal accounting entries” that resulted in accounting fraud and
the forgery of documents. The president of the board was later found guilty in a
court of justice.
8. Examples of accounting regulation:
Law 620 on Corporate
Accounting regulation: Established the requirement for share corporations to
Income Tax (1877)
present balance sheet and income statement information and to be taxed on reported
profit numbers.
Law 1041 Greek
Accounting regulation: Introduced the Greek General Chart of Accounts, which
General Chart of
was based on the French Accounting Plan. Adoption was voluntary during the first
Accounts (1980)
two years, and mandatory thereafter.
Mertzanis Report (1999) Other regulation: The committee on corporate governance in Greece issued a report
“Principles of Corporate Governance in Greece” outlining how to bridge local
corporate governance practices and international best practices of corporate
governance. The recommendations were voluntary, but inspired future regulatory
reform.
The table provides general information on the time period, data sources, search terms, and secondary literature used
in the data collection. An asterisk (*) indicates a premier (business) newspaper outlet in a country; a dollar sign ($)
indicates that the electronic archive does not offer free access, but needs a subscription; E stands for electronic
archive that is accessible through key word search; M stands for archive that requires manual search. The table also
lists a few illustrative examples of corporate scandals and accounting regulations identified in the search.
81
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A12.2
Incidents of Corporate Scandals and Accounting Regulation in Greece by Decade
Corporate Scandals
Decade
1830
1840
1850
1860
1870
1880
1890
1900
1910
1920
1930
1940
1950
1960
1970
1980
1990
2000
2010
Total
Accounting
0
0
0
0
0
0
1
0
0
0
0
0
0
0
0
0
0
3
0
4
Near
Accounting
0
0
0
0
0
1
0
0
0
1
0
0
2
0
0
2
2
3
3
14
Accounting Regulation
Other
Total
0
0
0
0
1
0
0
0
0
2
0
0
0
0
0
1
4
2
4
14
0
0
0
0
1
1
1
0
0
3
0
0
2
0
0
3
6
8
7
32
Accounting
0
0
0
0
1
1
0
1
0
1
1
0
3
1
0
1
4
2
2
18
Other
1
0
0
0
1
0
0
0
1
0
0
0
2
0
0
1
3
3
2
14
Supranational
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
2
0
3
3
8
Total
1
0
0
0
2
1
0
1
1
1
1
0
5
1
0
4
7
8
7
40
The table reports the number of corporate scandals and accounting regulations by decade and type for Greece over
the 1830 to 2015 period (N = 169 years). For the empirical analyses, we classify the corporate scandals that we
identified in the data collection as either “accounting scandal”, “near accounting scandal”, or “other scandal” and the
regulatory actions as either “accounting regulation”, “other regulation”, or “supranational regulation.” See Section 2
of the main text for details. If feasible, we measure corporate scandals in the year they are first covered in the
financial press, and accounting regulation in the year it is enacted.
82
APPENDIX
CORPORATE SCANDALS AND REGULATION
A13.! India
A13.1.! Overview
In the 17th century, India was a major economic power comprising almost 25% of the global
economy (The Maddison-Project, http://www.ggdc.net/maddison/maddison-project/home.htm).
The country was a leading exporter of silk, spices, rice, and manufactured cotton textiles. Much
of its exports went to Britain through the government-granted monopoly of the East India
Company. With the technological revolution of the late 18th century in Europe, India became a
primary supplier of raw materials and resources as well as a forced consumer of British
manufactured goods. These forces lead to a huge wealth drain from the subcontinent. The ruling
governor of the East India Company, essentially a prolonged arm of the British imperial
administration, imposed British social reforms including a reorganization of the government and
court system as well as investments in infrastructure projects like railways, canals, and telegraph.
These investments were used as an instrument of colonialism by the British, and primarily
benefitted the interests of the East India Company and not the Indian people. After World War I,
a nonviolent movement began under the leadership of Mahatma Gandhi and culminated in the
advent of independence in 1947 (at which point India’s share of the global economy was only
4%). The country was partitioned into a Muslim-majority Pakistan and a Hindu-majority India.
Subsequently, India’s economy was shaped by the socialist policies of Nehru’s democratically
elected Congress Party. Protectionism, a large government-run public sector, heavy regulation of
private businesses, and central planning were key elements of the economic policy. Industries
such as financial services, telecommunication, and steel were effectively nationalized. The
collapse of the Soviet Union in 1991 (India’s major trading partner and since 1971 strategic ally
through the Treaty of Friendship and Cooperation) also affected India, and led to a series of
economic reforms. By the early 2000s, India had substantially reduced state control and
liberalized important industries like financial services and telecommunication.
India is an example of an economy whose financial reporting practices were based on the
British model as a result of colonialization. Thus, modern Indian corporate legislation can trace
its origin to English Common Law. The Joint Companies Acts of 1850 plus the amendments in
1857 and 1860 were all modeled on the English Joint Stock Companies Acts. These laws
recognized the company as a distinct legal entity and included some (at the outset optional) rules
83
APPENDIX
CORPORATE SCANDALS AND REGULATION
on the preparation of balance sheets and income statements and how to present these reports to
the company’s shareholders at the yearly general meeting. After independence in 1947, India has
amended its company law and introduced its own accounting standards. In 1977, the Accounting
Standards Board (ASB) was formed and charged with the development and supervision of
Indian Accounting Standards. In recent years, Indian GAAP was modeled after International
Financial Reporting Standards (IFRS), but full convergence with IFRS has not yet occurred.
A13.2.!Data Collection
We start our data collection in 1838 with the first digitized issue of The Times of India. The
Times of India is the oldest and largest selling English-language newspaper in India, founded
1838 in Mumbai (https://en.wikipedia.org/wiki/The_Times_of_India). The electronic search
engine allows for key word search, and we screened every article containing the search terms for
potential episodes of scandals that met our definition. We then conducted another search using
the company names and time-periods identified to assess the economic importance of the event.
Our initial search yielded very few scandals in the years before 1947. Thus, to improve our
results, we performed a key word search using international news outlets, mainly the U.K.-based
Financial Times (https://en.wikipedia.org/wiki/Financial_Times). Because India was part of the
British empire until its independence in 1947 and had close economic ties with Great Britain, this
source yielded additional episodes of scandals.
We relied on a detailed survey of the secondary literature for regulation. This procedure
allowed us to identify the major national laws pertaining to company formation and accounting
rules. We also surveyed the online archives of the Institute of Chartered Accountants of India
(ICAI), the national professional accounting body, the Securities and Exchange Board of India
(SEBI), and the Serious Fraud Investigation Office under the Indian Ministry of Corporate
Affairs. Table A13.1 provides additional details on the data collection procedure.
A13.3.!Data Description
In Figure A13.1 we graphically plot the mentions of “Scandal” and “Regulator” in the
historical archives of The Times of India. The time series covers the years 1838 to 2015. We used
the exact terms in the key word search, regardless whether they appeared on the front page, in
the headlines or the body of the article. The mentions of “Scandal” exhibit substantial volatility
84
APPENDIX
CORPORATE SCANDALS AND REGULATION
over time with peaks in 1888, 1913, 1934, 1973 and, most notably, in 1996. The mentions of
“Regulator” stay essentially flat at low levels for long periods of time, but start to increase
dramatically beginning in 1990. Over the last nine years of the sample period, the mentions of
regulator exceed the scandals. The correlation between the two time-series is 63% over the entire
period, which is lower than in many of the other sample countries. In the years before 1945, the
correlation coefficient is about 37%.
Table A13.2 reports descriptive statistics on the incidents of corporate scandals and
accounting regulation by decade identified for India. The data covers the period 1838 to 2015.
We could identify 49 corporate scandals and 28 regulatory acts. The number of corporate
scandals was very low during most years, but started to increase after 1950, and even more so
after 1990. About 60% of the scandals occurred in the last 25 years of the sample period. The
regulatory activity was more evenly distributed, but also showed slightly higher levels in the last
few decades.
85
APPENDIX
CORPORATE SCANDALS AND REGULATION
FIGURE A13.1
Media Mentions of the Terms “Scandal” and “Regulator” from 1838 to 2015 in India
596..
:;#'<#*
=">?*#+&$
5916.
!"#$%&'()&$$"*#+,&'%5838(+&(1.56
./012
5838(+&(5276
./345
59...
5270(+&(1.56
524.(+&(1.56
./662
./761
46.
6..
16.
.
5836
5876
5866
5806
5846
5886
5826
52.6
5256
5216
5236
5276
5266
5206
5246
5286
5226
1..6
1.56
The figure plots the yearly number of incidents the terms “scandal” and “regulator” are mentioned in the business
press. We plot the results from searching the Indian newspaper The Times of India over the period 1838 to 2015. We
also indicate the contemporaneous Pearson correlation coefficients between the two time-series over the entire
period as well as over various sub-periods.
86
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A13.1
Overview of Data Collection Procedure in India
1. Earliest year of data collection and time period coverage:
Coverage: 1838 to 2015
Start date: November 3, 1838
2. Data sources, time period used for search, and data accessibility:
-! The Times of India (1838 to 2015); online archive through ProQuest Historical Newspapers and NewsBank
($; E)
-! Financial Times* (1888 to 2015); online newspaper archive ($; E): https://www.ft.com/ft-archive
3. Key search terms (main terms only):
Scandal: scandal, fraud, misconduct, embezzlement, theft
Accounting scandal/fraud: accounting scandal, accounting fraud, corporate scandal, corporate fraud, financial
misconduct
Earnings management: earnings management, earnings manipulation, accounting manipulation, creative
accounting
Regulator: regulator, regulation, legislator, legislation, law, decree, order
Accounting regulation: accounting regulation, disclosure regulation, GAAP, generally accepted accounting
principles, accounting rules, bookkeeping regulation, bookkeeping rules
Securities regulation/law: securities regulation, securities law, financial markets oversight, company law
4. Special remarks about data collection:
-! We used The Times of India as our main resource but complement it with searches in the U.K. newspaper
Financial Times.
-! When using the Financial Times, we limited the search to the period before 1947 to increase our search
results in the early sample period (i.e., before India’s independence).
-! We explicitly excluded scandals involving corruption and/or embezzlement by government officials (e.g.
state/municipality employees, etc.).
5. Secondary literature (main resources):
AICPA. 1975. India. In: International Practice Executive Committee (ed.). Professional Accounting in 30
Countries. American Institute of Certified Public Accountants: New York, NY: 253–275.
Jones, M. 2011. Creative Accounting, Fraud and International Accounting Scandals. John Wiley & Sons: West
Sussex, UK.
Khanna, B. 2011. Chapter 3: India. In: Previts, G., P. Walton, and P. Wolnizer (eds.). A Global History of
Accounting, Financial Reporting and Public Policy: Asia and Oceania. Emerald Group Publishing: Bingley,
UK: 107-139.
Marston, C., and P. Robson. 1997. Financial reporting in India: changes in disclosure over the period 1982 to
1990. Asia-Pacific Journal of Accounting 4: 109–140.
Perumpral, S., M. Evans, S. Agarwal, and F. Amenkhienan. 2009. The evolution of Indian accounting
standards: its history and current status with regard to International Financial Reporting Standards. Advances
in Accounting, incorporating Advances in International Accounting 25: 106–111.
6. Research assistant (RA) and local country expert (CE):
CE: Professor Sudipta Basu, Temple University
RA: Siladitya Mohanti
(Continued)
87
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A13.1—Continued
7. Examples of corporate scandals:
Credit Bank of India
Accounting scandal: The bank was accused of recording fictitious transactions in
(1914)
the accounting system and selling non-existent shares to outsiders with the intent to
funnel funds to corporate directors.
Satyam Computer
Accounting scandal: The case is sometimes referred to as “India’s Enron.” The
Services (2009)
founder and chairman of the board announced that the software services firm had
massively inflated its reported profits for years. The balance sheet contained
fictitious assets and left out actual liabilities. At the same time, revenues were
overstated or even made up. After a failed acquisition attempt, the firm could no
longer hide the losses and had to make them public. PwC, the audit firm at the time,
was heftily criticized for negligence in reviewing Satyam’s corporate governance
and financial reports.
Dhanlaxmi Bank
Accounting scandal: The bank was accused of manipulating its accounts and
(2011)
provisioning allowing it to report nominal profits amid its heavy reliance on shortterm funding, the mismatch between assets and liabilities, and poor capital ratio. To
inflate reported profits, the bank was deferring/capitalizing expenses and underapportioning the provisions for expected loan losses.
8. Examples of accounting regulation:
Companies Act
Accounting regulation: The law contained the (optional) requirement to prepare a
(1857)
balance sheet and income statement and present them to shareholders at the annual
meeting. It also contained provisions for the yearly audit of a company’s accounts
and the corresponding report to shareholders by the auditor.
Companies Act
Accounting regulation: The amendment introduced the requirement of a cost audit
(1956)
for public limited companies. The cost audit should ascertain investors whether the
operating aspects of the business such as production, marketing, and sales processes
are managed in the most effective way.
SEBI Act
Other regulation: The law established the Securities and Exchange Board of India
(1992)
(SEBI). The stated aim of SEBI was to protect the interests of investors, promote
the economic development, and regulate the Indian securities markets.
The table provides general information on the time period, data sources, search terms, and secondary literature used
in the data collection. An asterisk (*) indicates a premier (business) newspaper outlet in a country; a dollar sign ($)
indicates that the electronic archive does not offer free access, but needs a subscription; E stands for electronic
archive that is accessible through key word search. The table also lists a few illustrative examples of corporate
scandals and accounting regulations identified in the search.
88
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A13.2
Incidents of Corporate Scandals and Accounting Regulation in India by Decade
Corporate Scandals
Decade
1830
1840
1850
1860
1870
1880
1890
1900
1910
1920
1930
1940
1950
1960
1970
1980
1990
2000
2010
Total
Accounting
0
0
0
0
0
1
0
0
1
0
1
0
0
0
1
1
2
3
5
15
Near
Accounting
0
0
0
0
0
0
0
0
1
1
1
0
2
0
2
0
4
2
1
14
Accounting Regulation
Other
Total
0
0
0
0
0
0
0
1
0
0
0
0
2
2
1
2
4
4
4
20
0
0
0
0
0
1
0
1
2
1
2
0
4
2
4
3
10
9
10
49
Accounting
0
0
1
1
0
0
1
0
1
0
2
1
2
0
1
2
0
2
0
14
Other
0
0
2
1
0
2
0
0
0
0
0
0
1
0
1
0
2
2
3
14
Supranational
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Total
0
0
3
2
0
2
1
0
1
0
2
1
3
0
2
2
2
4
3
28
The table reports the number of corporate scandals and accounting regulations by decade and type for India over the
1838 to 2015 period (N = 178 years). For the empirical analyses, we classify the corporate scandals that we
identified in the data collection as either “accounting scandal”, “near accounting scandal”, or “other scandal” and the
regulatory actions as either “accounting regulation”, “other regulation”, or “supranational regulation.” See Section 2
of the main text for details. If feasible, we measure corporate scandals in the year they are first covered in the
financial press, and accounting regulation in the year it is enacted.
89
APPENDIX
CORPORATE SCANDALS AND REGULATION
A14.! Israel
A14.1.! Overview
As part of the British Mandate of Palestine following the end of World War I in 1918, the
territory of what later would become the State of Israel was governed by the legal and
commercial frameworks of the British Empire. The British Companies Act (1929) and the
Income Tax Ordinance (1941) were two key elements of this framework. At the time, all large
enterprises were owned by quasi-governmental Jewish institutions, and any local trade in
securities was carried out through the “Exchange Bureau for Securities,” founded by the AngloPalestine Bank in 1935. In 1948, the independent State of Israel was formed. The British
Companies Act would remain in effect until its replacement by the Companies Law in 1999. The
government owned and controlled much of the economy during the early years of Israel’s
statehood, and the information needs of private investors were not the main focus of regulations
in the area of accounting, financial reporting, and auditing. With the advent of large nongovernmental companies, due in part to the privatization of state-owned corporations, a more
formalized securities regulation emerged. The Tel Aviv Stock Exchange was established in 1953.
In 1968, the enactment of the Securities Law followed. This law was modeled on the U.S.
Securities and Exchange Act of 1933/1934 and included the creation of a supervisory and
enforcement body, the Israel Securities Authority. All securities listed on the Tel Aviv Stock
Exchange were subject to both its directives pertaining to financial reporting and those set forth
in the Companies Law. To improve investor access to local companies and strengthen capital
markets, Israel began to harmonize its local GAAP with international accounting standards in the
early 2000s. In 2006, the standard setter issued a mandate for all Israeli public companies to
publish financial reports in accordance with International Financial Reporting Standards
(IFRS). The mandate took effect in 2008, but allowed early adoption from 2006 onward.
A14.2.!Data Collection
We start our data collection in 1932 with the first digitized issue of The Jerusalem Post
(https://en.wikipedia.org/wiki/The_Jerusalem_Post), a leading Israeli daily newspaper published
in English and French (it was founded under the name The Palestine Post). The electronic
archive allows for key word search, and we screened every article containing the search terms for
90
APPENDIX
CORPORATE SCANDALS AND REGULATION
potential episodes of scandals that met our definition. We then conducted another search using
the company names and time-periods identified to assess the economic importance of the event.
We supplemented our search of Israeli sources with a comprehensive search of international
news outlets for the entire period (i.e., 1932 to 2015), namely the digital archives of the U.S.
newspapers New York Times and Wall Street Journal, and the U.K.-based Financial Times.
We relied on a detailed survey of the secondary literature for regulation. This procedure
allowed us to identify the major national laws and conventions pertaining to company formation,
corporate governance, and accounting. Once identified, we confirmed each regulatory event with
the corresponding source material including laws, codes, and accounting standards. We also
surveyed the online archives of the Israel Accounting Standards Board (http://www.iasb.org.il/),
which was formed in 1997 and replaced the Institute of Certified Public Accountants in Israel as
the primary standard-setting body. Table A14.1 provides additional details on the data collection
procedure.
A14.3.!Data Description
In Figure A14.1 we graphically plot the mentions of “Scandal” and “Regulator” in the
historical archives of The Jerusalem Post. The time series covers the years 1932 to 2015. We
used the exact terms in the key word search, regardless whether they appeared on the front page,
in the headlines, or the body of the article. The mentions of “Scandal” exhibit substantial
volatility over time, but a positive trend appears in the data. The time series spikes in 1973, 1987,
1998, and 2002. The mentions of “Regulator” are essentially flat at low levels during many years
of the sample period. In the mid-1980s, they start to increase, and even more so after 1997. They
reach their highest level in 2002/2003. The two terms are highly correlated, and the correlation
coefficient is around 80% over the entire period as well as from 1970 onwards.
Table A14.2 reports descriptive statistics on the incidents of corporate scandals and
accounting regulation by decade identified for Israel. The data covers the period 1932 to 2015.
We could identify 15 corporate scandals and 41 regulatory acts. All the scandals occurred after
1970, and the highest level was reached in the 2000s. The regulatory activity was more evenly
distributed over time, but reached higher levels from 1980 onwards. The last two decades also
coincided with the harmonization of Israeli GAAP with IFRS.
91
APPENDIX
CORPORATE SCANDALS AND REGULATION
FIGURE A14.1
Media Mentions of the Terms “Scandal” and “Regulator” from 1932 to 2015 in Israel
4..
9:#';#*
<"=>*#+&$
18.
!"#$%&'()&$$"*#+,&'%2637(+&(7.28
./012
2637(+&(2646
./344
265.(+&(7.28
./503
3..
28.
.
263.
261.
268.
264.
265.
260.
266.
7...
7.2.
The figure plots the yearly number of incidents the terms “scandal” and “regulator” are mentioned in the business
press. We plot the results from searching the Israeli newspaper The Jerusalem Post (until 1950: The Palestine Post)
over the period 1932 to 2015. We also indicate the contemporaneous Pearson correlation coefficients between the
two time-series over the entire period as well as over various sub-periods.
92
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A14.1
Overview of Data Collection Procedure in Israel
1. Earliest year of data collection and time period coverage:
Coverage: 1932 to 2015
Start date: December 1, 1932
2. Data sources, time period used for search, and data accessibility:
-! The Jerusalem Post (until 1950: The Palestine Post; 1932 to 2015); online archive through ProQuest
Historical Newspapers and Lexis Nexis ($; E).
3. Key search terms (main terms only):
Scandal: scandal, fraud, misconduct, embezzlement, theft
Accounting scandal/fraud: accounting scandal, accounting fraud, corporate scandal, corporate fraud, financial
misconduct
Earnings management: earnings management, earnings manipulation, accounting manipulation, creative
accounting
Regulator: regulator, regulation, legislator, legislation, law, decree, order
Accounting regulation: accounting regulation, disclosure regulation, GAAP, generally accepted accounting
principles, accounting rules, bookkeeping regulation, bookkeeping rules
Securities regulation/law: securities regulation, securities law, financial markets oversight, company law
4. Special remarks about data collection:
-! We focused on the country’s largest English-language newspaper and did not consider any news outlets in
Hebrew.
-! We used The Jerusalem Post as our main resource but complement it with searches in international outlets
like the U.K. newspaper Financial Times or the U.S. newspapers Wall Street Journal and New York Times.
-! We explicitly excluded scandals involving corruption and/or embezzlement by government officials (e.g.
state/municipality employees, etc.).
-! Israel is a rather small country, which might have contributed to the relatively small number of scandals we
could identify. In addition, many of the corporations in the early years were state-owned or government
controlled, and had no or little private ownership stakes.
5. Secondary literature (main resources):
AICPA. 1975. Israel. In: International Practice Executive Committee (ed.). Professional Accounting in 30
Countries. American Institute of Certified Public Accountants: New York, NY: 277–294.
Brock, D., and A. Richardson. 2013. The development of the accounting profession in the Holy Land since
1920: cultural memory and accounting institutions. Accounting History Review 23: 227–252.
Eden, Y., and D. Elnathan. 2012. Chapter 3: Israel. In: Previts, G., P. Walton, and P. Wolnizer (eds.). A Global
History of Accounting, Financial Reporting and Public Policy: Eurasia, the Middle East and Africa.
Emerald Group Publishing: Bingley, UK: 49–74.
Markelevich, A., L. Shaw, and H. Weihs. 2011. Conversion from national to International Financial Reporting
Standards. CPA Journal, March: 26–29.
Solomon, K., and H. Kaplan. 1964. Regulation of the accounting profession in Israel. The Accounting Review
39: 145–149.
6. Research assistant (RA) and local country expert (CE):
RA: Ido Spector, Interdisciplinary Center (IDC)
Herzliya - Arison School of Business; Manuel
Engelmann, University of Graz; Yael Rothschild Shiff
CE: Professor Ilan Guttman, New York University
(Continued)
93
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A14.1—Continued
7. Examples of corporate scandals:
Israel Corporation
Near accounting scandal: The CEO of the holding company committed fraud by
(1975)
placing fictitious purchase orders to funnel money to a foreign bank account. He
also borrowed money from the company and transferred it to a foreign bank
account instead of investing it in accordance with the loan guidelines.
Hassneh Insurance Co.
Accounting scandal: The insurance company misrepresented its financial position
(1994)
and failed to disclose material information to the market. Based on an actuarial
mistake, the company’s life insurance reserves were reported too high, but even
after the error was discovered, management decided to not adjust financial reports.
Moreover, the CEO did not disclose material information when selling shares of the
company.
Kupat Holim Meuhedet
Other scandal: Officials of the health fund were accused of corruption, nepotism,
(2010)
and misuse of funds in that they arranged payments and other favours for
themselves and their relatives out of company funds.
8. Examples of accounting regulation:
Securities Law
Other regulation: The law was modelled on its U.S. counterpart from 1933/1934. It
(1968)
regulated the Israeli securities exchange and established an oversight and
enforcement agency, the Israel Securities Authority (ISA).
Companies Law
Accounting regulation: The law (replacing the Companies Act of 1983) required
(1999)
private companies to keep their records and prepare, for each fiscal year, a set of
financial statements that included a balance sheet and income statement. These
reports also had to be audited by a certified auditor.
Israeli Accounting
Accounting regulation: Under this standard, public companies (except banks) were
Standard 29
required to adopt IFRS beginning from January 1, 2008, onwards. Early adoption of
(2006)
IFRS was allowed from 2006 on.
The table provides general information on the time period, data sources, search terms, and secondary literature used
in the data collection. An asterisk (*) indicates a premier (business) newspaper outlet in a country; a dollar sign ($)
indicates that the electronic archive does not offer free access, but needs a subscription; E stands for electronic
archive that is accessible through key word search. The table also lists a few illustrative examples of corporate
scandals and accounting regulations identified in the search.
94
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A14.2
Incidents of Corporate Scandals and Accounting Regulation in Israel by Decade
Corporate Scandals
Decade
1930
1940
1950
1960
1970
1980
1990
2000
2010
Total
Accounting
0
0
0
0
0
0
1
0
0
1
Near
Accounting
0
0
0
0
1
0
2
3
0
6
Accounting Regulation
Other
Total
0
0
0
0
2
1
1
2
2
8
0
0
0
0
3
1
4
5
2
15
Accounting
1
1
2
0
3
4
6
9
0
26
Other
2
1
0
1
2
2
0
3
4
15
Supranational
0
0
0
0
0
0
0
0
0
0
Total
3
2
2
1
5
6
6
12
4
41
The table reports the number of corporate scandals and accounting regulations by decade and type for Israel over the
1932 to 2015 period (N = 84 years). For the empirical analyses, we classify the corporate scandals that we identified
in the data collection as either “accounting scandal”, “near accounting scandal”, or “other scandal” and the
regulatory actions as either “accounting regulation”, “other regulation”, or “supranational regulation.” See Section 2
of the main text for details. If feasible, we measure corporate scandals in the year they are first covered in the
financial press, and accounting regulation in the year it is enacted.
95
APPENDIX
CORPORATE SCANDALS AND REGULATION
A15.! Italy
A15.1.! Overview
Before unification in the mid-19th century, Italy existed as an ever-changing collection of
sovereign city states that were frequently sites of proxy wars between the major regional powers.
During the Napoleonic Wars, northern Italy was invaded and reorganized as the Kingdom of
Italy. Napoleon’s brother-in-law, who was crowned as King of Naples, administered the southern
part of the peninsula. The Congress of Vienna (1814-15) restored the pre-Napoleonic patchwork
of independent states, and Italy was again controlled largely by the Austrian Empire in the north,
the Spanish in the south, and the Pope in the middle. It followed the so-called “Risorgimento”
(i.e., the “revival” of the Italian national identity), which culminated in 1870 with the Prussians
defeating Napoleon III and the Italian nationalists recapturing Italy’s future capital Rome. The
constitutional monarchy established after unification oversaw a period of economic prosperity
and minimal state involvement in the economy. In 1865, the Italian Commercial Code, built on
the Napoleonic codes, was enacted. A revision to this law in 1882 facilitated the creation of
limited liability companies, laid out systematic regulations bearing on corporate governance, and
expanded the minimal financial reporting requirements.
In 1915 Italy joined the Allies in World War I, and helped them secure the dissolution of the
Austro-Hungarian Empire. In the years that followed, the fascist Benito Mussolini rose to power,
and Italy sided with Nazi Germany during World War II. Under Mussolini’s dictatorship, the
government’s influence over the economy was expanded, and one of the primary goals of
accounting regulation such as the Civil Code of 1942 was to facilitate tax collection to finance
Mussolini’s colonial ambitions and expensive public works projects. The Allied invasion of the
country led to the collapse of the fascist regime and the fall of Mussolini.
Following the war, several state-run enterprises were privatized, the economy rapidly
recovered, and the need for corporate financing grew. These forces paved the way for economic
and legislative change. In 1957, Italy joined the European Economic Community (EEC) as a
founding member. In 1974, the Italian Securities and Exchange Commission (Commissione
Nazionale per le Società e la Borsa, CONSOB) was set up to regulate the stock exchange and the
financial reporting of listed companies. Shortly thereafter, a Presidential decree introduced
statutory independent audits into Italian law. As a member of the European Union (EU),
96
APPENDIX
CORPORATE SCANDALS AND REGULATION
legislation regarding accounting and financial statements is deeply influenced by the
corresponding EU directives. For instance, Italy required firms listed on EU-regulated markets to
prepare their financial statements in accordance with IFRS from 2005 onwards.
A15.2.!Data Collection
We start our data collection in 1860 even though our primary source, the digitized archive of
La Stampa does not start until 1867. We cover those early years with secondary literature and
web-based searches. La Stampa (https://en.wikipedia.org/wiki/La_Stampa) is one of the oldest
daily newspapers in Italy. The electronic archive allowed us to conduct a keyword search, and
we then screened each article for potential episodes of scandals that met our broad definition.
Once identified, we conducted another keyword search using the company names and time
periods to assess the economic importance of the event and gather additional information. We
supplemented this search with articles from two other widely-distributed daily newspapers, Il
Corriere della Sera (https://en.wikipedia.org/wiki/Corriere_della_Sera) and Il Sole 24 Ore. We
gauge the importance of the scandals by checking whether they were mentioned in the media
multiple times, and/or we could identify them from secondary sources.
We relied on a detailed survey of the secondary literature for regulation. This procedure
allowed us to identify the major national laws pertaining to commerce and, in later years, the
steps taken by the Italian legislature to implement the various EU accounting directives. We also
surveyed select institutions that helped to improve accounting regulation like the CONSOB, the
Italian equivalent to the U.S. Securities and Exchange Commission. Among other things, the
CONSOB developed rules for external auditing and the disclosure of executive compensation.
Table A15.1 provides additional details on the data collection procedure.
A15.3.!Data Description
In Figure A15.1 we graphically plot the mentions of “Scandal” and “Regulator” in the
historical archives of La Stampa. The newspaper was founded in 1867 and therefore the time
series covers the years 1867 to 2015. We used the Italian translations of our broad search terms
as well as some terms that capture the same underlying construct for the analysis. We observe a
stark increase in the mentions of both terms beginning in the mid-1970s. The volatility of the two
time-series is high, and the mentions of “Scandal” generally outpace those of “Regulator.” After
97
APPENDIX
CORPORATE SCANDALS AND REGULATION
peaking in 1992, the trend for both terms points downwards. The terms are highly correlated
with a correlation of 92% over the entire period and of 67% from 1970 onwards.
Table A15.2 reports descriptive statistics on the incidents of corporate scandals and
accounting regulation by decade identified for Italy. The data covers the period 1860 to 2015.
We were able to identify 161 corporate scandals and 63 regulatory acts. While there were early
pockets of accounting scandals around 1900 and 1930, the number of scandals steadily increased
from 1950 onwards. The decade of the 1990s marked an unprecedented high with more than 50
episodes of scandals. The regulatory activity mirrors this pattern. Apart from a few scattered
entries in the early years, the regulatory activity steadily increased from 1960 onwards and
peaked in the 1990s. In the last three decades, we observe the country-specific implementation of
several supranational directives and laws.
98
APPENDIX
CORPORATE SCANDALS AND REGULATION
FIGURE A15.1
Media Mentions of the Terms “Scandal” and “Regulator” from 1867 to 2015 in Italy
794..
:;#'<#*
=">?*#+&$
79...
894..
!"#$%&'()&$$"*#+,&'%1263(+&(8.14
./012
1263(+&(1054
./304
89...
1056(+&(8.14
103.(+&(8.14
./250
./637
194..
19...
4..
.
1264
1234
1224
1204
10.4
1014
1084
1074
1054
1044
1064
1034
1024
1004
8..4
8.14
The figure plots the yearly number of incidents the terms “scandal” and “regulator” (or the local equivalents) are
mentioned in the business press. We plot the results from searching the Italian newspaper La Stampa over the period
1867 to 2015. We use the terms “scandal” (“scandalo”) and “regulator” (“regolatore” and “legislatore”). We also
indicate the contemporaneous Pearson correlation coefficients between the two time-series over the entire period as
well as over various sub-periods.
99
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A15.1
Overview of Data Collection Procedure in Italy
1. Earliest year of data collection and time period coverage:
Coverage: 1860 to 2015
Start date: January 1, 1860
2. Data sources, time period used for search, and data accessibility:
-! La Stampa (1867 to 2015); online newspaper archive (E): http://www.archiviolastampa.it/
-! Il Corriere della Sera (1876 to 2015); online newspaper archive ($; E): http://archivio.corriere.it/Archivio/
-! Il Sole 24 Ore (1920 to 2015); online newspaper archive ($; E): http://www.ilsole24ore.com/st/lp-archiviostorico/
3. Key search terms and translations into local language (main terms only):
Scandal: Scandalo, truffa, frode
Accounting scandal/fraud: Scandalo contabile, scandalo finanziario, frode finanziaria, truffa finanziaria, frode
contabile, truffa contabile, falso in bilancio, truffa aziendale
Earnings management: Manipolazione dei bilanci, manipolazione dei dati di bilancio, bilanci alterati,
manipolazione dei principi contabili, falsificazione delle scritture contabili, bilanci truccati, bilanci gonfiati,
manipolazione degli utili, contabilita’ creativa, trucchi contabili
Regulator: Regolatore, legislatore, organismo regolatore, organismo legislativo, organismo di vigilanza,
autorita’ di vigilanza
Accounting regulation: Normativa contabile, legislazione contabile, leggi di contabilita’, regolamentazione
dell’ informazione contabile
Securities regulation/law: Regolamentazione del mercato finanziario, disciplina del mercato finanziario, diritto
dei valori mobiliari, legge del mercato azionario
4. Special remarks about data collection:
-! No electronically searchable digitized archives were available for the period 1860-1866. For this period, we
relied on secondary sources (e.g., books and Google searches) to identify cases of scandals.
-! The digitized archive of Il Sole 24 Ore only allows electronic search after 1984. Therefore, we use La Stampa
and Il Corriere della Sera as the main sources before 1984. Thereafter, we use all three sources combined.
-! Many scandals identified in the newspapers dealt with cases of embezzlement and corruption by government
officials and/or employees of private corporations, but did not originate from the private sector. We do not
include these cases of political scandals or personal fraud in the database.
5. Secondary literature (main resources):
Aganin, A., and P.Volpin. 2005. The history of corporate ownership in Italy. In: Morck, R. (ed.). A History of
Corporate Governance around the World: Family Business Groups to Professional Managers. University of
Chicago Press: Chicago. 325–365.
Bava, F., and M. Gromis di Trana. 2016. Disclosure on related party transactions: Evidence from Italian listed
companies. Accounting, Economics and Law: A Convivium 6: 119–150.
Cameran, M., and A. Pettinicchio. 2010. Chapter 4: Italy. In: Previts, G., P. Walton, and P. Wolnizer (eds.). A
Global History of Accounting, Financial Reporting and Public Policy: Europe. Emerald Group Publishing:
Bingley, UK. 89–106.
Di Pietra, R. 2011. Analysis of changing institutional environments, new accounting policies, and corporate
governance practices in Italy. In: Krivogorsky, V. (ed.). Law, Corporate Governance, and Accounting.
Taylor & Francis: Abingdon, UK. 230–257.
Di Pietra, R., S. McLeay, and A. Riccaboni. 2001. Regulating accounting within the political and legal system.
In: McLeay, S., and A. Riccaboni (eds.). Contemporary Issues in Accounting Regulation. Kluwer Academic
Publishers: Dordrecht, NL. 59–78.
Enriques, L. 2009. Corporate governance reforms in Italy: What has been done and what is left to do. European
Business Organization Law Review 10: 477–513.
(Continued)
100
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A15.1—Continued
Melis, A. 2011. Creative accounting and accounting scandals in Italy. In: Jones M. (ed.). Creative Accounting,
Fraud and International Accounting Scandals. John Wiley & Sons: West Sussex, UK: 253–277.
Olivero, B. 1997. The accounting standardisation process in Italy: a French view. In: Flower, J., and C.
Lefebvre (eds.). Comparative Studies in Accounting Regulation in Europe. Acco Publishers: Leuven, BE:
219–247.
Sargiacomo, M., L. Ianni, A. D’Andreamatteo, and S. Servalli. 2015. Accounting and the fight against
corruption in Italian government procurement: A longitudinal critical analysis (1992–2014). Critical
Perspectives on Accounting 28: 89–96.
Took, L. 1995. The history of financial reporting in Italy. In: Walton, P. (ed). European Financial Reporting: A
History. Academic Press: London, UK. 157–168.
6. Research assistant (RA) and local country expert (CE):
CE: Professor Roberto Di Pietra, University of Siena
RA: Elisabetta Ipino, Concordia University
7. Examples of corporate scandals:
Banca Romana (1893)
Accounting scandal: The bank was heavily affected by the real estate bubble that
burst in 1887. It had loaned large sums to real estate developers, which defaulted
during the crisis. The bank also engaged in several accounting irregularities like the
manipulation of accounts, the inflating of cash holdings, the issuance of fictitious
notes, etc. that ultimately led to its bankruptcy.
Banca Popolare di
Accounting scandal: The bank’s board of directors neglected to create necessary
Milano (1995)
reserves for pending loan losses, which allowed the bank to report profits rather
than losses and mask its underlying risks from investors.
A.S. Roma (2004)
Near accounting scandal: The professional soccer club (together with other teams
of the Italian Serie A) realized fictitious gains from the sale of players’ registration
rights to cover pending losses and avoid having to raise external capital to meet the
minimum capital requirements of the league.
8. Examples of accounting regulation:
Italian Commercial
Accounting regulation: This law introduced the requirement to keep accounting
Code (1865)
books related to the economic activities of the firm.
Bank Law (1936)
Other regulation: The new Bank Law was seen as a reaction to major bank failures
at the time. To enhance the stability of the banking system, it introduced the strict
separation between commercial and investment banking. Only the second group
could own equity stakes in nonfinancial companies.
Law 216
Accounting regulation: The law represented a step towards modernizing corporate
(1974)
and accounting legislation. Among other things, it introduced new minimum
disclosure requirements (e.g., on the format and content of the income statement, or
the publication of interim reports) and set limits to share cross-holdings.
The table provides general information on the time period, data sources, search terms, and secondary literature used
in the data collection. An asterisk (*) indicates a premier (business) newspaper outlet in a country; a dollar sign ($)
indicates that the electronic archive does not offer free access, but needs a subscription; E stands for electronic
archive that is accessible through key word search. The table also lists a few illustrative examples of corporate
scandals and accounting regulations identified in the search.
101
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A15.2
Incidents of Corporate Scandals and Accounting Regulation in Italy by Decade
Corporate Scandals
Decade
1860
1870
1880
1890
1900
1910
1920
1930
1940
1950
1960
1970
1980
1990
2000
2010
Total
Accounting
0
0
0
2
2
0
3
4
0
3
3
3
4
16
22
11
73
Near
Accounting
0
0
0
0
2
0
0
0
0
1
1
3
10
23
12
5
57
Accounting Regulation
Other
Total
2
0
0
0
0
0
0
1
0
1
2
5
2
12
2
4
31
2
0
0
2
4
0
3
5
0
5
6
11
16
51
36
20
161
Accounting
1
0
1
0
0
0
0
1
1
0
0
4
3
9
6
1
27
Other
0
0
0
1
0
1
0
1
1
0
0
3
2
8
5
2
24
Supranational
0
0
0
0
0
0
0
0
0
0
1
0
0
4
6
1
12
Total
1
0
1
1
0
1
0
2
2
0
1
7
5
21
17
4
63
The table reports the number of corporate scandals and accounting regulations by decade and type for Italy over the
1860 to 2015 period (N = 156 years). For the empirical analyses, we classify the corporate scandals that we
identified in the data collection as either “accounting scandal”, “near accounting scandal”, or “other scandal” and the
regulatory actions as either “accounting regulation”, “other regulation”, or “supranational regulation.” See Section 2
of the main text for details. If feasible, we measure corporate scandals in the year they are first covered in the
financial press, and accounting regulation in the year it is enacted.
102
APPENDIX
CORPORATE SCANDALS AND REGULATION
A16.! Japan
A16.1.! Overview
Prior to the 1850s, Japan adhered to a longstanding policy of national isolation. The country
restricted contact and commerce with the outside world. Beginning with the Japan-U.S. Amity
Treaty of 1854, Japan began a process of opening up to international engagement and relations
that eventually would lead to the restoration of power of the Japanese emperor Meiji in 1868.
During the following years (known as the Meiji Restoration), the government implemented
reforms aimed at transforming the feudal economic and social order of traditional Japan into a
modern, Western-style nation. These initiatives coincided with a period of military buildup and
imperial expansion that led to the Sino-Japanese War (1894-1895), the Russo-Japanese War
(1904-1905), and the annexation of Korea (1910). After the end of World War I, Japan went
through a series of recessions and financial crises including a stock market crash in 1920 and a
banking crisis in 1927. To promote economic recovery the country increased military spending
and industrial rationalization. The military-led expansion in China eventually led to the SinoJapanese War (1937-1945), and culminated in Japan’s defeat in World War II. After the war, the
allied occupation forces remained in the country for several years and implemented legal and
economic reforms. Japan’s remarkable growth in the decades that followed has made it one of
the world’s largest economies.
Japanese law first recognized the limited liability corporation with the adoption of the
National Bank Ordinance of 1872. Companies were required to meet certain financial reporting
requirements aimed less at the protection of private investors than at securing the strong
government ties provided under the ordinance. The Japanese Commercial Code (1899) was
largely modelled upon the German Commercial Code of 1861. The increasing nationalization of
the economy in the years before World War II prompted reforms of cost-accounting methods
used by the large Japanese industrial conglomerates. After the war, the occupation forces
implemented reforms such as the Securities and Exchange Law (1948) and the Business
Accounting Principles (1949) to strengthen Japanese capital markets. Integrating the U.S.-based
securities regulation with the German-influenced code law reporting system required a series of
amendments to the Commercial Code over following decades. The disclosure of consolidated
group accounts first became mandatory in 1976. Following the so-called “lost decade” (a
103
APPENDIX
CORPORATE SCANDALS AND REGULATION
prolonged period of economic stagnation) after the 1989 burst of the Japanese asset bubble, the
economic reforms undertaken to strengthen Japan’s international competitiveness also affected
financial reporting. The Accounting Standards Board of Japan (ASBJ) was established in 2001
and charged with developing Japanese Accounting Standards. In 2005, a new Corporate Law
replaced the existing Japanese commercial code. At that time, the ASBJ began working with the
International Accounting Standards Board toward convergence between International Financial
Reporting Standards (IFRS) and Japanese GAAP. As of 2015, Japanese companies were
permitted to use any of the following four frameworks: IFRS, Japanese GAAP, Japan’s modified
international standards, or US GAAP.
A16.2.!Data Collection
We start our data collection in 1874 with the first digitized issue of the Yomiuri Shimbun
(https://en.wikipedia.org/wiki/Yomiuri_Shimbun), which is the leading national newspapers in
Japan by circulation. The electronic archive allows for key word search, and we screened every
article containing the search terms for potential episodes of scandals that met our definition. We
then conducted another search using the company names and time-periods identified to assess
the economic importance of the event. We supplemented our search with secondary sources and
the online archive of The Nikkei (https://en.wikipedia.org/wiki/The_Nikkei), Japan’s premier
business newspaper (only available online after 1975).
We relied on a detailed survey of the secondary literature for regulation. This procedure
allowed us to identify the major national laws pertaining to company formation, investor
protection, and accounting. We also surveyed select institutions that helped to improve
accounting regulation like the Japanese Institute of Certified Public Accountants (JICPA). Table
A16.1 provides additional details on the data collection procedure.
A16.3.!Data Description
In Figure A16.1 we graphically plot the mentions of “Scandal” and “Regulator” in the
historical archives of the Yomiuri Shimbun. The time series covers the years 1874 to 2015. We
used the Japanese translations of our broad search terms as well as some terms that capture the
same underlying construct for the analysis. For the period before 1985, the digital archive allows
us to search only the “headlines” and “keywords” section of the respective articles, explaining
104
APPENDIX
CORPORATE SCANDALS AND REGULATION
the large jump in observations in that year. From 1985 on, the mentions of the two terms are
highly volatile but also strongly correlated with a correlation coefficient of 90% over the 1970 to
2015 period. The media mentions peak in the years 2000 and 2002. The strong positive
correlation also exists over the entire period, even though the two terms are negatively correlated
in the pre-World War II years.
Table A16.2 reports descriptive statistics on the incidents of corporate scandals and
accounting regulation by decade identified for Japan. The data covers the period 1874 to 2015.
We could identify 227 corporate scandals and 59 regulatory acts. While there were peaks in
corporate scandals in the 1920s and 1960s, the numbers substantially increased over the last 25
years. We observe the highest number of scandals in 2004 with 16 incidents. The regulatory
activity was more evenly distributed over time and, unlike some of the other sample countries,
does exhibit a disproportional increase over the last few decades.
105
APPENDIX
CORPORATE SCANDALS AND REGULATION
FIGURE A16.1
Media Mentions of the Terms “Scandal” and “Regulator” from 1874 to 2015 in Japan
4:8..
;<#'=#*
>"?@*#+&$
4:...
6:8..
!"#$%&'()&$$"*#+,&'%6527(+&(4.68
./012
6527(+&(6078
3./441
6079(+&(4.68
602.(+&(4.68
./042
./500
6:...
8..
.
652.
655.
650.
60..
606.
604.
601.
607.
608.
609.
602.
605.
600.
4...
4.6.
The figure plots the yearly number of incidents the terms “scandal” and “regulator” (or the local equivalents) are
mentioned in the business press. We plot the results from searching the Japanese newspaper Yomiuri Shimbun
(O!/I) over the period 1874 to 2015. We use the terms “scandal” (“E”, “
”, or “SI”) and
fraud (“:9”) together with the terms “regulator” (“$B”) and “company law” (“;”, “;)” and “6”,
“;)” and “6”, or “;)” and “D”). We also indicate the contemporaneous Pearson correlation coefficients
between the two time-series over the entire period as well as over various sub-periods.
106
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A16.1
Overview of Data Collection Procedure in Japan
1. Earliest year of data collection and time period coverage:
Coverage: 1874 to 2015
Start date: November 2, 1874
2. Data sources, time period used for search, and data accessibility:
-! Yomiuri Shimbun (; 1874 to 2015); online newspaper archive ($; E):
http://www.yomiuri.co.jp/database/en/
-! The Nikkei* (; 1975 to 2015); online newspaper archive ($; E): http://pr.nikkei.com/pro/
3. Key search terms and translations into local language (main terms only):
Scandal: E, , SI, :9
Accounting scandal/fraud: LE, L8, LU, LR, LN7
Earnings management: ., %H&., L,, %H,
Regulator: K", $B, ;&6, ;&6, ;&D, ;&
Accounting regulation: LK, L <, LK
Securities regulation/law: ;, D;, M(;
4. Special remarks about data collection:
-! For the period before 1985, the digital archive of the Yomiuri Shimbun only allows the search of the article
headlines and keyword sections. Thus, the analysis of media mentions contains a systematic break in the time
series.
-! We supplemented our search of the Yomiuri Shimbun with searches in the electronic archive of The Nikkei,
Japan’s premier business newspaper. The online archive is only available after 1975.
5. Secondary literature (main resources):
Hashimoto, M. 2002. Commercial code revisions: promoting the evolution of Japanese companies. Nomura
Research Institute Papers No. 48.
Kudo, E., H. Okano, and S. Saito. 2011. Chapter 5: Japan. In: Previts, G., P. Walton, and P. Wolnizer (eds.). A
Global History of Accounting, Financial Reporting and Public Policy: Asia and Oceania. Emerald Group
Publishing: Bingley, UK: 171–202.
Sakagami, M., H. Yoshimi, and H. Okano. 1999. Japanese accounting profession in transition. Accounting,
Auditing and Accountability Journal 12: 340–357.
Shiba, K, and L. Shiba. 1997. Chapter 7: Japan. In: Ma, R. (ed.). Financial Reporting in the Pacific Asia
Region. World Scientific: Singapore: 200–229.
6. Research assistant (RA) and local country expert (CE):
RA: Keita Kana, Kwansei Gakuin University,
CE: Professor Koji Kojima, Kwansei Gakuin University
Benjamin Miller, Northwestern University
(Continued)
107
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A16.1—Continued
7. Examples of corporate scandals:
Nitto (1909)
Accounting scandal: The Japan Sugar Company failed due to fraudulent accounting
practices including window-dressing and fictitious dividends. Several prominent
politicians were found guilty of bribery. This incident prompted an examination of
the accounting and auditing practices required at the time.
Fuji Sash (1976)
Accounting scandal: The largest ever earnings manipulation in Japan at the time.
The company boosted sales by forcing an associated firm to purchase products at
inflated prices. At the same time, the company understated its costs of goods sold
by not impairing obsolete inventories. The company also illegally paid large
dividends and managerial bonuses even though it was unprofitable.
Kanebo (2005)
Accounting scandal: The accounting fraud at Kanebo, which took place over the
years 2000 to 2004, is referred to as the Enron of Japan. A variety of earnings
management tools were used including the sale of unmarketable merchandise just
before the end of the fiscal year with a firm contract to buy it back immediately
thereafter, thereby avoiding a write-down of obsolete inventories. Kanebo’s audit
firm ChuoAoyama was later forcibly broken up by the regulator due to their
involvement in the accounting manipulations.
8. Examples of accounting regulation:
Commercial Code
Other regulation: The new Commercial Code was part of the modernization of the
(1899)
Japanese society. It established the fundamental legal regimes that regulated
economic transactions and activities and enabled private entities to transform into
public corporations. The law was strongly influenced by the German commercial
code.
Certified Public
Accounting regulation: The law set out the requirements and definitions of a
Accountants Act
certified public accountant who was able to performed statutory audits of Japanese
(1948)
corporations.
Financial Instruments
Accounting regulation: The act strengthened investor protection and expanded
and Exchange Act
disclosure obligations of publicly traded companies. It also stipulated an internal
(2006)
control system for financial reporting and is often referred to as J-SOX, i.e., the
Japanese version of the U.S. Sarbanes-Oxley Act.
The table provides general information on the time period, data sources, search terms, and secondary literature used
in the data collection. An asterisk (*) indicates a premier (business) newspaper outlet in a country; a dollar sign ($)
indicates that the electronic archive does not offer free access, but needs a subscription; E stands for electronic
archive that is accessible through key word search. The table also lists a few illustrative examples of corporate
scandals and accounting regulations identified in the search.
108
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A16.2
Incidents of Corporate Scandals and Accounting Regulation in Japan by Decade
Corporate Scandals
Decade
1870
1880
1890
1900
1910
1920
1930
1940
1950
1960
1970
1980
1990
2000
2010
Total
Accounting
0
0
1
2
1
2
0
2
4
20
15
3
14
48
15
127
Near
Accounting
1
0
0
2
3
3
0
0
5
1
1
2
6
10
1
35
Accounting Regulation
Other
Total
0
3
5
1
1
11
7
3
2
0
1
1
13
16
1
65
1
3
6
5
5
16
7
5
11
21
17
6
33
74
17
227
Accounting
2
2
2
1
2
2
6
5
4
3
2
0
2
6
1
40
Other
3
2
3
0
0
0
1
2
2
0
0
0
2
3
1
19
Supranational
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Total
5
4
5
1
2
2
7
7
6
3
2
0
4
9
2
59
The table reports the number of corporate scandals and accounting regulations by decade and type for Japan over the
1874 to 2015 period (N = 142 years). For the empirical analyses, we classify the corporate scandals that we
identified in the data collection as either “accounting scandal”, “near accounting scandal”, or “other scandal” and the
regulatory actions as either “accounting regulation”, “other regulation”, or “supranational regulation.” See Section 2
of the main text for details. If feasible, we measure corporate scandals in the year they are first covered in the
financial press, and accounting regulation in the year it is enacted.
109
APPENDIX
CORPORATE SCANDALS AND REGULATION
A17.! Republic of Korea
A17.1.!Overview
During the Chosun dynasty, the predecessor of modern-day Korea, the country was a small,
closed, agricultural economy, in which merchants relied on their own unique double-entry
bookkeeping system. In 1876, the Japanese and Western powers opened the markets and forced
the dynasty to participate in international trade. A modern banking system emerged and the
western-style method of double-entry bookkeeping replaced traditional Korean accounting. In
1910, the Chosun dynasty collapsed and became part of the Japanese colonial system. Because
Japanese institutions were rooted in German code law, bank lending was the primary source of
corporate funding. Financial statements mainly served for taxation and credit screening purposes.
At the end of World War II, Korea was divided into the northern part controlled by the
Soviets and the southern part controlled by the U.S.A. A massive influx of U.S. financial aid
after the end of the Korean War (1950-1953) led to the creation of the Korean stock exchange in
1956, and prompted the government and its affiliated banks to develop a new set of accounting
rules that would facilitate capital allocation. In 1958, the government, not the private sector,
instituted the first Korean GAAP. To further promote the development of equity markets,
additional legislations followed: e.g., a new initial public offering law in 1973, and a bifurcated
GAAP for listed and non-listed companies in 1975. This two-tier system ended in 1981, when
both listed and large non-listed companies became subject to external audits and a single GAAP.
The Asian financial crisis in 1997 abruptly ended an extended period of economic growth,
backed by government spending and economic planning. As part of the bail-out negotiations for
its sovereign debt, both the International Monetary Fund and the World Bank advised the
Korean government to fundamentally strengthen capital markets, improve accounting
transparency, and delegate accounting rule-making to a private sector standard-setting body. An
agreement reached between the government and the international agencies led to the Korean
Accounting Standards Board’s formation (KASB), and culminated in a revision of the Act on
External Audit of Stock Companies in 2000. The KASB extensively revised Korean GAAP to
increase compatibility with International Financial Reporting Standards (IFRS). In 2007, the
government and KASB decided to mandatorily require IFRS reporting for all listed companies
and financial institutions in 2011, allowing early adoption from 2009 onwards.
110
APPENDIX
CORPORATE SCANDALS AND REGULATION
A17.2.!Data Collection
For scandals, we began the data collection in 1920, which is the year our data source, the
major Korean newspaper Cho-sun Il-Bo (https://en.wikipedia.org/wiki/The_Chosun_Ilbo) was
established. The newspaper has a digitized searchable archive with continuous coverage except
during World War II. We first conducted a preliminary search with a comprehensive list of
keywords, yielding a total of more than 5,000 news articles. We examined each article to identify
the companies mentioned, followed by another keyword search based on the company names and
time periods for related articles. We only included scandals with a major public impact (e.g.,
multiple mentions in the archives, featured in the headlines, in-depth coverage in the newspaper,
and/or intense feedback from readers). Many scandals involved multiple facets of fraud (e.g.,
bribing government officials, personal embezzlement, accounting manipulation, etc.). We coded
these scandals according to their most notable aspect of wrongdoing.
We relied on a survey of secondary literature and the website of the Ministry of Government
Legislation (http://www.law.go.kr/eng/engMain.do) for regulation. We examined all changes in
relevant legislation, including the Act on External Audit of Stock Companies, the Securities and
Exchange Act, the Capital Market and Financial Investment Business Act, and the Commercial
Law. We include only regulatory changes with a major impact for firms’ financial reporting in
the database, and ignore minor adjustments to accounting laws and legislative initiatives in areas
other than accounting (e.g., in the area of securities law). Table A17.1 provides additional details
on the data collection procedure.
A17.3.!Data Description
In Figure A17.1 we graphically plot the mentions of “Scandal” and “Regulator” in the
historical archives of the Cho-sun Il-Bo. The time series covers the years 1920 to 2015. We used
the Korean translations of our broad search terms as well as some terms that capture the same
underlying construct for the analysis. The period of Japanese occupation (1910-1945), the postcolonization period (1945-1961), and the semi-democratic period (1961-1987) were marked by
censorship of public opinion, corruption, and a general lack of transparency. Accordingly, the
mentions of scandals and regulation in the (often politically biased) press were infrequent, as
presumably many of these episodes did not make it to the public. At the same time, the level of
regulation and the development of capital markets were much lower, so that incidences of
111
APPENDIX
CORPORATE SCANDALS AND REGULATION
accounting wrongdoing might not have been as frequent or newsworthy. From 1988 onwards,
after the first democratic elections and the gradual return of the freedom of the press, we observe
a stark increase in the mentions of both terms. Another marked increase occurred after the Asian
Financial Crisis in 1997. The correlation between the two terms is extremely high at around 98%
over the entire time period as well as over the latter half of the period.
Table A17.2 reports descriptive statistics on the incidents of corporate scandals and
accounting regulation by decade identified for Korea. The data covers the period 1920 to 2015.
We were able to identify 74 corporate scandals and 51 regulatory acts. Consistent with the
newspaper mentions in Figure A17.1, we observe a surge in the number of reported scandals
after 1988. While there were scattered regulatory acts beginning in the 1960s, the regulatory
activity substantially increased over the last 25 years.
112
APPENDIX
CORPORATE SCANDALS AND REGULATION
FIGURE A17.1
Media Mentions of the Terms “Scandal” and “Regulator” from 1920 to 2015 in Korea
28...(
:;#'<#*(
68...(
=">?*#+&$(
!"#$%&'()&$$"*#+,&'%./012
504.(+&(4.56
./234
504.(+&(507.
78...(
5072(+&(4.56
501.(+&(4.56
./012
./011
38...(
48...(
58...(
.(
504.(
503.(
507.(
506.(
502.(
501.(
509.(
500.(
4...(
4.5.(
The figure plots the yearly number of incidents the terms “scandal” and “regulator” (or the local equivalents) are
mentioned in the business press. We plot the results from searching the Korean newspaper Cho-sun Il-Bo over the
period 1920 to 2015. We use the terms “scandal” (“���”), “fraud” (“��”), and “wrongdoing” (“��”); and
“regulation” (“��”) and supervision (“��”). We also indicate the contemporaneous Pearson correlation
coefficients between the two time-series over the entire period as well as over various sub-periods.
113
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A17.1
Overview of Data Collection Procedure in Korea
1. Earliest year of data collection and time period coverage:
Coverage: 1920 to 2015 (without 1941-1945)
Start date: March 5, 1920
2. Data sources, time period used for search, and data accessibility:
-! Cho-sun Il-Bo (1920 to 2015); online archive through library (E): http://srchdb1.chosun.com/pdf/i_archive/
-! Ministry of Government Legislation (1948 to 2015); online archive through library (E):
http://www.law.go.kr/eng/engMain.do
3. Key search terms and translations into local language (main terms only):
Scandal: �����������
Accounting scandal/fraud: ����������������������
Earnings management: ����������
Regulator: ������
Accounting regulation: ����������
Securities regulation/law: ����������������������������������������
4. Special remarks about data collection:
-! Drastic socioeconomic changes during the sample period (1920-2015), for instance, in the aftermath of the
1997 Asian Financial Crisis.
-! No suitable newspaper coverage during World War II (1941-1945).
-! News outlets might be politically biased during stretches of sample period.
-! Surge in scandals and regulatory changes along with proliferation of democracy since late 1980s.
5. Secondary literature (main resources):
Cho, I., and S. Jeong. 2011. Chapter 6: Republic of Korea. In: Previts, G., P. Walton, and P. Wolnizer (eds.). A
Global History of Accounting, Financial Reporting and Public Policy: Asia and Oceania. Emerald Group
Publishing: Bingley, UK: 203–230.
Hong, K., and Park, Y. 2002. A case study on the accounting and taxation system of Chosun Dynasty. Korean
Accounting Journal 11: 65–102.
6. Research assistant (RA), local country expert (CE), and country advisor (CA):
RA: Seung Youb Han, Seoul National University
CE: Professor Han Yi, Korea University
CA: Professor Sophia Hamm, Ohio State University
(Continued)
114
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A17.1—Continued
7. Examples of corporate scandals:
Daewoo Business Group Accounting scandal: The then no. 2 business group in Korea overstated earnings
(1999)
and net assets via booking fake sales and inventories, and recording off-balance
sheet liabilities, all of which resulted in an accumulated accounting fraud of KRW
41 trillion. The case led to the dissolution of the conglomerate, the closure of the
audit firm in charge (Sandong Accounting), and the indictment of 21 executives
and 33 accountants.
SK Business Group
Accounting scandal: An affiliate of the conglomerate, SK Global Co., fraudulently
(2003)
increased its equity and earnings by KRW 1.5 trillion through overstating accounts
receivables and the omission of inventory impairments.
Busan Savings Bank
Accounting scandal: The bank, a major local saving banks in Busan (the second
(2011)
largest city in Korea), misreported money embezzled by major shareholders as
normal loans. This procedure allowed the institution to disguise its negative capital
ratio. After the fraud was detected, the savings bank was closed, causing huge
losses to tens of thousands of depositors.
8. Examples of accounting regulation:
Act on External Audit of Accounting regulation: The act strengthened the role of the external auditor by, e.g.,
Stock Companies (1981) requiring an explicit opinion on the soundness of the internal audit system.
Securities and Exchange Accounting regulation: Introduced the requirement for the CEO to sign off on the
Act (2004)
firm’s financial statements and to have at least one member of the audit committee
with a background in accounting or finance.
Other regulation: Consolidated several related financial regulations such as the
Capital Market and
Securities and Exchange Act or the Futures Trading Act into a single regulatory
Financial Investment
framework that sets rules for all kinds of market manipulation like insider trading,
Business Act (2009)
stock price manipulation or fraudulent financial reporting.
The table provides general information on the time period, data sources, search terms, and secondary literature used
in the data collection. An asterisk (*) indicates a premier (business) newspaper outlet in a country; a dollar sign ($)
indicates that the electronic archive does not offer free access, but needs a subscription; E stands for archive that is
accessible through electronic key word search. The table also lists a few illustrative examples of corporate scandals
and accounting regulations identified in the search.
115
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A17.2
Incidents of Corporate Scandals and Accounting Regulation in Korea by Decade
Corporate Scandals
Decade
1920
1930
1940
1950
1960
1970
1980
1990
2000
2010
Total
Accounting
0
0
0
0
0
0
0
3
13
9
25
Near
Accounting
0
0
0
0
0
0
0
4
3
10
17
Accounting Regulation
Other
Total
0
0
0
0
0
0
2
10
10
10
32
0
0
0
0
0
0
2
17
26
29
74
Accounting
0
0
0
1
0
1
2
5
10
4
23
Other
0
0
0
1
1
2
2
6
7
8
27
Supranational
0
0
0
0
0
0
0
0
1
0
1
Total
0
0
0
2
1
3
4
11
18
12
51
The table reports the number of corporate scandals and accounting regulations by decade and type for Korea over
the 1920 to 2015 period (N = 91 years). For the empirical analyses, we classify the corporate scandals that we
identified in the data collection as either “accounting scandal”, “near accounting scandal”, or “other scandal” and the
regulatory actions as either “accounting regulation”, “other regulation”, or “supranational regulation.” See Section 2
of the main text for details. If feasible, we measure corporate scandals in the year they are first covered in the
financial press, and accounting regulation in the year it is enacted.
116
APPENDIX
CORPORATE SCANDALS AND REGULATION
A18.! Netherlands
A18.1.!Overview
The Netherlands was one of the world’s first diversified trade-driven economies going back
to the 18th century. The Dutch were pioneers in establishing the free flow of goods and capital
and it was also in the Netherlands where the first documented market-bubble in history occurred
(the Dutch Tulip Mania in 1637). In the early 1800s, the country entered a period of slow
economic growth and de-urbanization as a result of trade wars with England and France. By midcentury, the situation reversed and the Netherlands evolved into an industrialized society. The
limited liability company became the common vehicle to organize industrial activity and the
reorganized Amsterdam Stock Exchange emerged as the country’s financial hub. The great
depression and the two World Wars greatly impacted the country’s political and economic
system and led to the decolonization of the extensive territories in the Dutch East Indies. World
War II was followed by a process of rebuilding, and the Netherlands became one of the founding
members of the European Coal and Steel Community, the predecessor of the European Union.
The Napoleonic wars brought the French Commercial Code to the Netherlands, which in
1837 was supplemented and replaced by a domestic version. The Commercial Code governed the
regulation of limited liability companies, which to be created required “royal assent.” It also
included provisions on bookkeeping and the dissemination of accounting information. A revision
to the Commercial Code in 1928 introduced the regular publication of financial statements by
limited liability companies. In 1970, a new law was enacted that required the yearly audit of
financial statements and a more detailed discussion of the valuation and accounting standards
used in the disclosures of the individual firms.
A18.2.!Data Collection
We rely on the Delpher archive (http://www.delpher.nl) for the data collection in the
Netherlands, which gives us remote access to a large trove of Dutch newspapers and documents.
In the more recent period, we also use the LexisNexis database for our search. Starting point is
the first digitized issue of the Algemeen Handelsblad in 1828, the precursor of the NRC
Handelsblad (https://en.wikipedia.org/wiki/NRC_Handelsblad), an influential Dutch newspaper
aimed at providing business news. We conducted an electronic keyword search and included
117
APPENDIX
CORPORATE SCANDALS AND REGULATION
scandals for which there were multiple mentions in the newspaper or which we could also
identify from secondary sources. We did not find any major scandals before 1870 and only a few
incidences of fraudulent reporting or creative accounting before World War II.
For regulation, we relied on a detailed survey of the secondary literature and experts’ input.
This procedure allowed us to identify the major national laws pertaining to commerce and, in
later years, the steps taken by the Dutch government to implement the various EU accounting
directives. We also surveyed the exposure drafts of the Dutch accounting standards but only
included them if they were dealing with major issues (and coded them at the time the final
standards were issued). Table A18.1 provides additional details on the data collection procedure.
A18.3.!Data Description
In Figure A18.1 we graphically plot the mentions of “Scandal” and “Regulator” in the
historical archives of the Dutch newspaper Algemeen Handelsblad’s (from 1970 on: NRC
Handelsblad). The newspaper was founded in 1828, and gives us archival data for the period
1828 to 2015. We used the Dutch translations of our broad search terms as well as some terms
that capture the same underlying construct for the analysis. We observe a clear pattern in the
period before World War II. The mentions of regulator steadily increase and peak in 1905,
followed by a stark drop with two marked upticks in the 1930s. The mentions of scandal largely
mimic this pattern, albeit at lower levels. The correlation between the two time-series over this
period is 62%. In the post-war period, the time-series start anew, with a gap in coverage from
1995 to 1997. The correlations, in particular from 1970 onward with only 45%, are on the lower
side compared to what we observe in some of the other countries.
Table A18.2 reports descriptive statistics on reported incidents of corporate scandals and
accounting regulations by decade identified for the Netherlands. The data covers the period 1828
to 2015. We were able to identify 47 corporate scandals and 42 regulatory acts. While there was
an early peak in accounting scandals in the years leading up to the Great Depression, we observe
the biggest surge in the new millennium. Regulatory activities became more frequent after World
War II, and exhibit a peak in the early 2000s. This period coincided with the country-specific
implementation of several supranational directives or laws.
118
APPENDIX
CORPORATE SCANDALS AND REGULATION
FIGURE A18.1
Media Mentions of the Terms “Scandal” and “Regulator” from 1828 to 2015 in the Netherlands
6..(
9:#';#*(
3..(
<"=>*#+&$(
!"#$%&'()&$$"*#+,&'%2646(+&(4.20
./012
2646(+&(2757
./341
2713(+&(4.20
./305
278.(+&(4.20
./110
1..(
4..(
.(
264.( 265.( 261.( 260.( 263.( 268.( 266.( 267.( 27..( 272.( 274.( 275.( 271.( 270.( 273.( 278.( 276.( 277.( 4...( 4.2.(
The figure plots the yearly number of incidents the terms “scandal” and “regulator” (or the local equivalents) are
mentioned in the business press. We plot the results from searching the Dutch newspaper Algemeen Handelsblad
(from 1970 on: NRC Handelsblad) over the period 1828 to 2015 in the Delpher archive (1828 to 1994) and the
LexisNexis database (1998 onwards). We use the terms “scandal” (“schandaal”) and “company law” or “supervisory
body” (i.e., “ondernemingsrecht”, “wet” in combination with “onderneming”, “firma”, “compagnie”, or
“vennootschap”, and “toezichthouder”). The newspaper was under censorship by the Nazi regime during World War
II (1940 to 1945) and data are missing for the years 1995 to 1998. We also indicate the contemporaneous Pearson
correlation coefficients between the two time-series over the entire period as well as over various sub-periods.
119
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A18.1
Overview of Data Collection Procedure in the Netherlands
1. Earliest year of data collection and time period coverage:
Coverage: 1828 to 2015 (without 1941-1945)
Start date: January 5, 1828
2. Data sources, time period used for search, and data accessibility:
-! Algemeen Handelsblad* (from 1970 on: NRC Handelsblad*) (1828 to 1994); online archive (E):
http://www.delpher.nl
-! NRC Handelsblad* (1998 to 2015); online archive through library (E): http://academic.lexisnexis.nl
3. Key search terms and translations into local language (main terms only):
Scandal: Schandaal
Accounting scandal: Jaarrekening schandaal, boekhoud schandaal, financieel schandaal
Accounting fraud: Jaarrekening fraude, boekhoud fraude, financieel fraude
Earnings management: Winststuring
Regulator: Toezichthouder
Accounting regulation: Boekhoudkundige wetgeving, Wetgeving financiële verslaggeving
Securities regulation/law: Wetgeving aandelen/waardepapieren/effecten
4. Special remarks about data collection:
-! No suitable newspaper coverage during World War II.
-! No digitized archive for NRC Handelsblad between 1995 and 1997, we therefore covered this period using
secondary literature.
5. Secondary literature (main resources):
Camfferman, K. 1997. Voluntary Annual Report Disclosure by Listed Dutch Companies, 1945-1983. Garland
Publishing: London.
Camfferman, K. 2010. Chapter 5: The Netherlands. In: Previts, G., P. Walton, and P. Wolnizer (eds.). A Global
History of Accounting, Financial Reporting and Public Policy: Europe. Emerald Group Publishing: Bingley,
UK: 107–137.
Flower, J., and C. Lefebvre (eds.). 1997. Comparative Studies in Accounting Regulation in Europe. Acco
Publishing: Leuven.
Zeff, S., F. van der Wel, K. Camfferman. 1992. Company Financial Reporting: A Historical and Comparative
Study of the Dutch Regulatory Process. North-Holland: New York.
6. Research assistant (RA) and local country expert (CE):
CE: Prof. Kees Camfferman, VU University Amsterdam
RA: Joris de Kok, Wageningen University
7. Examples of corporate scandals:
Afrikaanse HandelsAccounting scandal: Management falsified the books and the balance sheet to
vereeniging (1879)
conceal the fact that the company’s West African operations were failing.
OGEM (1979)
Accounting scandal: Non-consolidation of subsidiaries and other accounting issues
including the insufficient and delayed recognition of impairment charges.
Fokker (1995)
Accounting scandal: The aircraft manufacturer wrongfully capitalized development
costs and did not impair them even though there was little hope of recovery.
8. Examples of accounting regulation:
The Jolles Proposal
Accounting regulation: First elaborate company law that replaces and extends the
(1871)
1837 Commercial Code and includes specific requirements for financial reporting.
Registered Auditors Act
Other regulation: Regulated the auditing profession and allowed only registered
(1962)
accountants to attest the “faithfulness” of financial statements.
Act on Oversight of
Accounting regulation: Act to safeguard investors and strengthen the public’s trust
Securities Trading
in capital markets; includes provisions for listed companies to disclose sensitive
(1995)
information to stock market participants.
The table provides general information on the time period, data sources, search terms, and secondary literature used
in the data collection. An asterisk (*) indicates a premier (business) newspaper outlet in a country; a dollar sign ($)
indicates that the electronic archive does not offer free access, but needs a subscription; E stands for archive that is
accessible through electronic key word search. The table also lists a few illustrative examples of corporate scandals
and accounting regulations identified in the search.
120
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A18.2
Incidents of Corporate Scandals and Accounting Regulation in the Netherlands by Decade
Corporate Scandals
Decade
1820
1830
1840
1850
1860
1870
1880
1890
1900
1910
1920
1930
1940
1950
1960
1970
1980
1990
2000
2010
Total
Accounting
0
0
0
0
0
1
0
1
2
1
4
1
0
0
0
1
2
3
4
2
22
Near
Accounting
0
0
0
0
0
0
1
1
0
0
2
0
0
0
0
1
0
1
1
3
10
Accounting Regulation
Other
Total
0
0
0
0
0
0
0
0
0
0
0
1
0
0
0
1
2
0
4
7
15
0
0
0
0
0
1
1
2
2
1
6
2
0
0
0
3
4
4
9
12
47
Accounting
0
1
0
0
0
1
0
0
0
0
2
0
0
0
1
4
1
1
3
0
14
Other
0
0
0
0
0
0
1
1
0
2
0
0
0
2
1
5
3
3
3
1
22
Supranational
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
2
0
3
1
6
Total
0
1
0
0
0
1
1
1
0
2
2
0
0
2
2
9
6
4
9
2
42
The table reports the number of corporate scandals and accounting regulations by decade and type for the
Netherlands over the 1828 to 2015 period (N = 183 years). For the empirical analyses, we classify the corporate
scandals that we identified in the data collection as either “accounting scandal”, “near accounting scandal”, or “other
scandal” and the regulatory actions as either “accounting regulation”, “other regulation”, or “supranational
regulation.” See Section 2 of the main text for details. If feasible, we measure corporate scandals in the year they are
first covered in the financial press, and accounting regulation in the year it is enacted.
121
APPENDIX
CORPORATE SCANDALS AND REGULATION
A19.! Poland
A19.1.!Overview
The history of Poland has several unique features that have affected its status as a statutory
authority, a single unified territory, and a free-market economy. Between 1795 and the start of
World War I, Poland was split into three separate territories annexed by Russia, Prussia, and
Austria. Each territory was subject to a different set of commercial codes and differing levels of
economic development. While each commercial code was modeled after the French Commercial
Code, they differed in their degree of legislative detail and scope of application. Following the
end of World War I, Poland regained the status of a unified and sovereign nation. During the
interwar period (1918-1939), the Second Polish Republic took steps towards integrating the
country into a single economic and political entity including the creation of a unified currency,
establishing a state administration and central bank, and adopting The Commercial Code of
1934. The latter legislation set out the rules of accounting for private enterprises and succeeded
the principles inherited from the codes of the partitioning countries.
Between 1939 and 1945, Poland fell under German occupation. Following World War II, the
Soviet Union instituted a communist regime in Poland that brought about dramatic changes to its
political, social, and economic systems. The socialist government put in place a centrally planned
economy. The role of accounting was to coordinate between state budgets and both nationalized
enterprises and other budgetary units. Private capital and capital markets largely disappeared and
financial reporting was focused essentially on providing input for state statistics. After regaining
independence in 1989, Poland began the process of adjusting its accounting regulatory system to
meet the information needs of a market-based economy and to better approximate the rules of the
European Union (EU), which it joined in 2004.
A19.2.!Data Collection
The data collection starts in 1920 after Poland regained national sovereignty. In the early
years, we used the digitized issues of Kurier Warszawski, the leading daily newspaper published
in Warsaw. Because this electronic archive does not provide a full-text search function, we were
required to manually download and read each issue, which takes 15 minutes on average. Due to
resource constraints, we limited the search to every Friday’s issue of the newspaper. This process
122
APPENDIX
CORPORATE SCANDALS AND REGULATION
assumes that the business press covers major episodes of scandals multiple times over the course
of a week. In total, we manually examined 1,025 issues covering the years 1920 to 1938.
We had to skip the years of World War II as well as the Soviet era in our search. The official
newspapers from the socialist period (e.g., Trybuna Ludu, Trybuna Robotnicza, or G!os Ludu)
are not available in electronic format. Moreover, newspapers during this period were not
informative, due mainly to strict press censorship by the government. Nonetheless, with the help
of secondary sources, we were able to identify a few well-publicized scandals occurring during
the socialist period. All these scandals were connected to the embezzlement of public funds.
From 1989 onwards, we used the electronic archives of the Gazeta Wyborcza, which is
among the first independent newspapers published in the period following the communist regime
(https://en.wikipedia.org/wiki/Gazeta_Wyborcza). We were able to search for particular words in
the articles of the newspaper over a specific period. For regulation, we relied on surveying
secondary literature and expert input. In particular, the website of the Polish government was
very useful in identifying regulatory acts going back to 1920. We focus only on the most
important new acts and amendments in our search. Table A19.1 provides additional details on
the data collection procedure.
A19.3.!Data Description
In Figure A19.1 we graphically plot the mentions of “Scandal” and “Regulator” in the
historical archives of the Gazeta Wyborcza. The time series covers the years 1989 to 2015. We
use the Polish translations of our broad search terms as well as some terms that capture the same
underlying construct for the analysis. We observe a marked peak in the mentions of “Scandal” in
the mid-2000s and a similar, but less pronounced pattern for “Regulator.” The correlation
between the two terms is 72%, which is high but not as extreme as in other countries.
Table A19.2 reports descriptive statistics on the incidents of corporate scandals and
accounting regulation by decade identified for Poland. The data covers the period 1920 to 2015.
We were able to identify 74 corporate scandals and 19 regulatory acts. There were some scandals
during the interwar period (1918-1939), very few (that were publicly known) during the socialist
regime (1946-1989), but several accounting and related scandals after 1990. The regulatory
activity is concentrated in the more recent years, which also coincides with the country-specific
implementation of several supranational directives or laws after Poland had joined the EU.
123
APPENDIX
CORPORATE SCANDALS AND REGULATION
FIGURE A19.1
Media Mentions of the Terms “Scandal” and “Regulator” from 1989 to 2015 in Poland
27...(
89#':#*(
176..(
;"<=*#+&$(
!"#$%&'()&$$"*#+,&'%3454(+&(1.36
./012
17...(
376..(
37...(
6..(
.(
3456(
3446(
1..6(
1.36(
The figure plots the yearly number of incidents the terms “scandal” and “regulator” (or the local equivalents) are
mentioned in the business press. We plot the results from searching the Polish newspaper Gazeta Wyborcza over the
period 1989 to 2015. We use the terms “scandal” (“Afera”) and “regulator” (“Ustawodawca”, “Ustawodawstwo”, or
“Izba ustawodawcza”) in combination with “commercial code” (“Kodeks handlowy”). We also indicate the
contemporaneous Pearson correlation coefficient between the two time-series over the entire period.
124
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A19.1
Overview of Data Collection Procedure in Poland
1. Earliest year of data collection and time period coverage:
Coverage: 1920 to 2015 (without 1939 to 1945)
Start date: January 2, 1920
2. Data sources, time period used for search, and data accessibility:
-! Gazeta Wyborcza* (1989 to 2015); online archive through library (E):
http://www.archiwum.wyborcza.pl/Archiwum/0,107050.html
-! Kurier Warszawski (1920 to 1938, missing 1921 and 1927); online archive through library (M):
http://ebuw.uw.edu.pl/dlibra/publication?id=207925&tab=3
3. Key search terms and translations into local language (main terms only):
Scandal: afera
Accounting scandal/fraud: afera ksi@gowa, afera finansowa
Earnings management: ksztaAtowanie zysków
Regulator: ustawodawca, izba ustawodawcza
Accounting regulation: ustawa o rachunkowoBci, przepisy dotyczCce rachunkowoBci
Securities regulation/law: normy prawne o obrocie papierami wartoBciowymi
4. Special remarks about data collection:
-! Some years were not available for analysis in the Kurier Warszawski (e.g., 1921 and 1927).
-! No suitable newspaper coverage during World War II and the Soviet era.
-! Manual search of digitized copies of daily newspaper during early years (Friday edition only); electronic key
word search only available from 1989 onwards.
5. Secondary literature (main resources):
Barbasiewicz, M. 2013. Ludzie Interesu W Przedwojennej Polsce. Wydawnictwo Naukowe PWN: Warsaw.
Jarosz, D., and M. Pasztor. 2004. Afera mi"sna: Fakty i konteksty. Centrum Edukacji Europejskie: ToruD.
Jaruga, A., and P. Kabalski. 2010. Chapter 6: Poland. In: Previts, G., P. Walton, and P. Wolnizer (eds.). A
Global History of Accounting, Financial Reporting and Public Policy: Europe. Emerald Group Publishing:
Bingley, UK: 139–162.
Kowalski, P. 2013. O zaniechanej akcji likwidacji przedwojennych spóAek prawa handlowego w Polsce
Ludowej. Miscellanea Historico-Iuridica 12: 423–434.
Majchrzak, I. 1965. Pracownicze przest"pstwo gospodarcze i jego sprawca. Wiedza Powszechna: Warsaw.
Miodowski, A. 2003. Przew!aszczenia dóbr Dojlidzkich na tle kampani politycznej prze!omu 1921/1922 roku.
Libra s.c. Wydawnictwo i Drukarnia: BiaAystok.
RomaDski, M. 2013. Afery i Naduzycia gospodarcze. Przyczynek do badaD nad przest@pczoBciC w PRL. Studia
z Historii Spo!eczno-Gospodarczej 12: 123–135.
6. Research assistant (RA) and local country expert (CE):
CE: Dr. Jan Michalak, University of Lodz
RA: Halina Waniak, University of Lodz
(Continued)
125
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A19.1—Continued
7. Examples of corporate scandals:
LOT Polish Airlines
Accounting scandal: Falsified financial statements for 2013 by recognizing a fixed
(2014)
asset impairment as correction to previous year’s instead of this year’s net income.
Warsaw City Meat
Other scandal: Theft of meat, falsification of invoices, and bribes of meat suppliers
Commerce (1964)
by the directors of the state-owned meat trade in Warsaw that led to the conviction
(and execution) of key people involved.
Polish State Railways
Accounting scandal: Manipulation of financial results by reclassifying investment
PKP (1929)
funds as extraordinary gains.
8. Examples of accounting regulation:
Accountancy Act
Accounting regulation: Adapt Polish legislation to the practices of International
Amendment (2000)
Accounting Standards IAS.
Accountancy Act (1994) Accounting regulation: Adapt Polish legislation to the practices of EU accounting
directives (e.g., require the preparation of statements of cash flows).
Decree of Minister of
Accounting regulation: Lays out the structure of the balance sheet and income
Finance (1951)
statement for public sector entities.
The table provides general information on the time period, data sources, search terms, and secondary literature used
in the data collection. An asterisk (*) indicates a premier (business) newspaper outlet in a country; a dollar sign ($)
indicates that the electronic archive does not offer free access, but needs a subscription; E stands for electronic
archive that is accessible through key word search; M stands for archive that requires manual search. The table also
lists a few illustrative examples of corporate scandals and accounting regulations identified in the search.
126
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A19.2
Incidents of Corporate Scandals and Accounting Regulation in Poland by Decade
Corporate Scandals
Decade
1920
1930
1940
1950
1960
1970
1980
1990
2000
2010
Total
Accounting
1
6
0
0
0
0
0
5
4
3
19
Near
Accounting
2
4
0
0
0
0
0
2
4
3
15
Accounting Regulation
Other
Total
6
10
0
1
2
1
0
11
7
2
40
9
20
0
1
2
1
0
18
15
8
74
Accounting
0
2
0
3
0
1
1
2
2
0
11
Other
0
1
0
0
0
1
0
0
3
0
5
Supranational
0
0
0
0
0
0
0
0
3
0
3
Total
0
3
0
3
0
2
1
2
8
0
19
The table reports the number of corporate scandals and accounting regulations by decade and type for Poland over
the 1920 to 2015 period (N = 89 years). For the empirical analyses, we classify the corporate scandals that we
identified in the data collection as either “accounting scandal”, “near accounting scandal”, or “other scandal” and the
regulatory actions as either “accounting regulation”, “other regulation”, or “supranational regulation.” See Section 2
of the main text for details. If feasible, we measure corporate scandals in the year they are first covered in the
financial press, and accounting regulation in the year it is enacted.
127
APPENDIX
CORPORATE SCANDALS AND REGULATION
A20.! Portugal
A20.1.! Overview
By the 19th century, Portugal’s status as a leading imperial power engaging in maritime trade
and exploration had been greatly diminished. The Portuguese monarchy had taken steps to
strengthen the legal foundation of trade and commerce during the latter half of the 18th century,
including the establishment of a Board of Trade and School of Commerce, but these reforms had
a somewhat limited impact on business practice at the time. After the invasion by the French
(1807), the Portuguese resistance supported by the British, and the loss of its largest overseas
colony Brazil (1822), Portugal instituted a constitutional monarchy. The Portuguese Commercial
Code of 1833 was largely modelled after the French commercial code.
Political unrest and economic problems brought an end to the monarchy. The situation did
not materially change during Portugal’s First Republic (1910-1926), which led to the installation
of an authoritarian military regime in 1926. The new constitution enacted in 1933 solidified the
dictatorial leadership of prime minister António Salazar (who, as a side note, wrote articles on
bookkeeping and held academic posts at the University of Coimbra as varied as “professor of
economics,” “emergency lecturer in financial law,” and “lecturer in accountancy”). His reign
was marked by monetary stability, extensive state control of private enterprises, economic
stagnation, and costly efforts to maintain Portugal’s status in Africa and Asia. After a short-lived
military coup in 1974, a democratically elected government returned and gradually liberalized
the economy. In 1977, the new Official Accounting Plan was released, which in 1983 led to the
formation of the Accounting Standards Board (Comissão de Normalização Contabilistica, CNC)
as an independent agency attached to the ministry of finance. In 1986, Portugal joined the
European Economic Community (EEC). In the years that followed, the country implemented
economic reforms to harmonize Portuguese company law with EEC directives on financial
reporting. For instance, in 1989 the Official Accounting Plan was amended to incorporate the
Fourth EEC directive. In 1991, the Seventh EEC directive was implemented. As a member of the
European Union (EU), Portugal required all listed companies to prepare their financial
statements under International Financial Reporting Standards as of January 1, 2005. In 2009, a
major accounting reform took place that instituted a new accounting system for non-listed firms
(Sistema de Normalização Contabilística, SNC).
128
APPENDIX
CORPORATE SCANDALS AND REGULATION
A20.2.!Data Collection
We start our data collection in 1864 with the first issue of the Portuguese newspaper Diário
de Notícias (https://en.wikipedia.org/wiki/Di%C3%A1rio_de_Not%C3%ADcias). For the years
1864 to 1918 and again 1974 to 2009, no digitized versions of the newspaper are available, and
we had to use the microfilm archive at the National Library of Portugal. To reduce the manual
workload, we limited our search to articles on the front page and the first page of the business
section of every edition. For the period between 1919 and 1973, we used the digitized archive of
the U.S. edition of a newspaper of the same name, Diário de Notícias. This Portuguese language
outlet was published in New Bedford, MA, and served the Portuguese-American community in
the U.S. The paper covers topics specific to immigrants as well as important news from Portugal.
The digital archive is fully searchable, and we used it to identify new episodes of scandals and
confirm existing scandals that we had found in the secondary literature. For the most recent
period, starting in 2010, we relied on the full-text search engine in Factiva.
We relied on a survey of secondary literature for regulatory activity. We identified the major
national laws and EU Directives on accounting regulation. We also surveyed select institutions
that helped to improve accounting regulation in Portugal such as the CNC. We examined each
standard issued by the CNC since its inception, but only included those regulations that we
deemed significant. Table A20.1 provides additional details on the data collection procedure.
A20.3.!Data Description
Unlike for the other sample countries, we could not conduct a time-series analysis of media
mentions in Portugal because of lack of electronically searchable newspaper archives. We list
descriptive statistics on the incidents of corporate scandals and accounting regulation by decade
identified for Portugal in Table A20.2. The data covers the period 1864 to 2015. We could
identify 61 corporate scandals and 42 regulatory acts. While there was a steady level of corporate
scandals around the turn of the 19th century, the numbers substantially increased after 1990.
Similarly, the regulatory activity exhibits a pronounced increase over the last 45 years. This
period coincided with the country-specific implementation of several supranational directives
and laws. One explanation for the relatively few regulations in the early years is that Portugal
with its long history of international trade already had some basic accounting regulation in place
before the beginning of our sample.
129
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A20.1
Overview of Data Collection Procedure in Portugal
1. Earliest year of data collection and time period coverage:
Coverage: 1864 to 2015
Start date: December 29, 1864
2. Data sources, time period used for search, and data accessibility:
-! Diário de Notícias (1864 to 1918; 1974 to 2009): onsite access to newspaper microfilms at National Library
of Portugal (M); (2010 to 2015): online archive through Factiva ($; E)
-! Diário de Notícias, Portuguese-American edition (1919 to 1973); online archive through library (E):
http://www.lib.umassd.edu/PAA/portuguese-american-digital-newspaper-collections
3. Key search terms and translations into local language (main terms only):
Scandal: escândalo, caso, fraude.
Accounting scandal/fraud: escândalo contabilístico, fraude contabílistica, caso contabilístico, escândalo
corporativo, escândalo empresarial, fraude corporativa, fraude empresarial, corrupção financeira, fraude
financeira.
Earnings management: gestão de resultados, manipulação de resultados, contabilidade criativa.
Regulator: regulador, regrador, mediador.
Accounting regulation: regulamentação contabilística, normalização contabilística.
Securities regulation/law: regulamentação dos valores mobiliários, regulamentação dos mercados mobiliários,
código dos valores mobiliários.
4. Special remarks about data collection:
-! No analysis of media mentions for Portugal because of lack of consistent digital archives that would allow
electronic key word search over long periods of time.
-! For large parts of the time-series, only manually searchable newspaper resources were available. Thus, we
limited the search of hard copy or microfilm versions of daily newspapers to the front page and the first page
of the business section.
-! Some months had to be excluded from the search due to missing or illegible microfilm archives (e.g., May to
September 1900, January to March 2000, July to December 2000, February to May 2001).
-! For the period 1919 to 1973, we relied on a Portuguese newspaper published in the U.S., which allowed for
electronic key word search (but at the cost of potentially lower coverage of business dealings in Portugal).
5. Secondary literature (main resources):
Caria, A., and L. Rodrigues. 2014. The evolution of financial accounting in Portugal since the 1960s: a new
institutional economics perspective. Accounting History 19: 227–254.
Ferreira, L. 2003. Chapter 12: Portugal. In: Alexander, D., and S. Archer (eds.). European Accounting Guide
(5th ed.). Aspen Publishers: New York, NY: 12.01–12.41.
Gueifão, G., and M. Gulamhussen. 2011. Analysis of changing institutional environments, new accounting
policies, and corporate governance practices in Portugal. In: Krivogorsky, V. (ed.). Law, Corporate
Governance, and Accounting. Taylor & Francis: Abingdon, UK. 175–189.
Isidro, H., and C. Pais. 2017. The role and current status of IFRS in the completion of national accounting rules
– evidence from Portugal. Accounting in Europe 27: 1–13.
Rodrigues, L., H, Carqueja, and L. Ferreira. 2016. Double-entry bookkeeping and the manuscripts dictated in
the Lisbon School of Commerce. Accounting History 21: 489–511.
Rodrigues, L., D. Gomes, and R. Craig. 2003. Corporatism, liberalism and the accounting profession in
Portugal since 1755. Accounting Historians Journal 30: 95–128.
Rodrigues, L., D. Gomes, and R. Craig. 2003. The Portuguese School of Commerce, 1759-1844: a reflection of
the “Enlightenment”. Accounting History 9: 53–71.
6. Research assistant (RA) and local country expert (CE):
RA: Inês Bastos and Rita Estêvão, Instituto
CE: Professor Helena Isidro, Instituto Universitário de
Universitário de Lisboa; Gabriel Voelcker,
Lisboa
Universidade do Vale do Rio dos Sinos
(Continued)
130
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A20.1—Continued
7. Examples of corporate scandals:
Banco de Portugal
Accounting scandal: Management was accused of manipulating the financial
(1866)
statements of the bank by recording overstated assets on the balance sheet and
omitting expenses in the income statement.
Credito Predial (1910)
Accounting scandal: The bank was accused of falsifying its books, issuing nonauthorized bond instruments and overstating profits so that it could pay out a
(largely fictitious) dividend to shareholders.
EXPO 98 (1998)
Near accounting scandal: Organizers embezzled more than 1.3 million euros
during the 1998 Lisbon World Exposition. The investigation led to the arrest of the
treasurer and the suspension of the directors. An extensive audit of the accounting
for the event was conducted.
8. Examples of accounting regulation:
Formation of NUABO
Accounting regulation: The professional organization of the National Union of
(1934)
Accountants and Bookkeepers from the Oporto District (NUABO) was formed. Its
goals were to advance accounting practice and education, and to provide guidance
on certain (often technical) accounting issues. Being the first of its kind, the
influence was felt not just in the Porto area, but on a national level.
Industrial Tax Code
Accounting regulation: The law placed an income tax on firm profits, and defined
(1963)
taxable income based on the numbers from the accounting system. It also instituted
minimum requirements (e.g., age, credentials, years of practice, etc.) for
professional accountants.
Decree-Law 486
Accounting regulation: The law replaces and modernizes the existing securities
(1999)
market code. Among other things, it requires that auditors registered with the
Portuguese Securities Market Commission (Comissão do Mercado de Valores
Mobiliários, CMVM) issue an opinion on firms’ annual financial statements.
The table provides general information on the time period, data sources, search terms, and secondary literature used
in the data collection. An asterisk (*) indicates a premier (business) newspaper outlet in a country; a dollar sign ($)
indicates that the electronic archive does not offer free access, but needs a subscription; E stands for electronic
archive that is accessible through key word search; M stands for archive that requires manual search. The table also
lists a few illustrative examples of corporate scandals and accounting regulations identified in the search.
131
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A20.2
Incidents of Corporate Scandals and Accounting Regulation in Portugal by Decade
Corporate Scandals
Decade
1860
1870
1880
1890
1900
1910
1920
1930
1940
1950
1960
1970
1980
1990
2000
2010
Total
Accounting
1
0
0
0
0
1
0
0
0
0
0
0
0
1
5
3
11
Near
Accounting
0
0
0
0
2
1
3
1
0
1
0
2
2
3
4
2
21
Accounting Regulation
Other
Total
0
2
0
4
0
1
2
2
0
0
0
0
1
7
4
6
29
1
2
0
4
2
3
5
3
0
1
0
2
3
11
13
11
61
Accounting
0
0
0
0
0
3
0
1
1
0
2
6
9
6
6
0
34
Other
0
0
0
0
0
0
0
0
0
0
0
0
0
2
1
0
3
Supranational
0
0
0
0
0
0
0
0
0
0
0
0
1
1
3
0
5
Total
0
0
0
0
0
3
0
1
1
0
2
6
10
9
10
0
42
The table reports the number of corporate scandals and accounting regulations by decade and type for Portugal over
the 1864 to 2015 period (N = 152 years). For the empirical analyses, we classify the corporate scandals that we
identified in the data collection as either “accounting scandal”, “near accounting scandal”, or “other scandal” and the
regulatory actions as either “accounting regulation”, “other regulation”, or “supranational regulation.” See Section 2
of the main text for details. If feasible, we measure corporate scandals in the year they are first covered in the
financial press, and accounting regulation in the year it is enacted.
132
APPENDIX
CORPORATE SCANDALS AND REGULATION
A21.! South Africa
A21.1.! Overview
First established as a colony by the Dutch East India Company in 1652, the Cape of Good
Hope is the oldest of the four founding provinces of South Africa. After the Cape colony was
ceded to the British in 1806, many of the original Dutch settlers (or “Boers”) migrated to the
surrounding regions and founded the Boer republics of Natalia, the Orange Free State, and
Transvaal. The short-lived Natalia republic became the British colony of Natal in 1843. The
discovery of diamonds in the late 1860s and gold in the late 1880s prompted an expansion of the
British presence in southern Africa through immigration, investments, and military force. The
indigenous Zulu people and the Boer republics opposed the British in armed conflicts, but
ultimately were outnumbered and defeated. In 1909, the Union of South Africa was created as a
dominion of the British Empire. In 1931, the union gained its sovereignty from the United
Kingdom, and thirty years later, in 1961, the country became a republic following a national
referendum. Under the regime of the National Party, the racial segregation and minority rule
known as Apartheid that began under Dutch and British colonial rule, was strengthened. Decades
of international opposition, disinvestment campaigns, and economic sanctions followed. The
release from prison of the leader of the longtime suppressed opposition, Nelson Mandela, in
1990 marked the end of apartheid and the beginning of a peaceful transition of power to the
black majority of the South African people.
Early company laws put in place in the British territories such as the Cape Joint Stock
Companies Limited Liability Act (1861) or the Cape of Good Hope Companies Act (1892) were
influenced by contemporary British acts. At the same time, the Boer republics had their own
company legislation like the Limited Liabilities Companies Act adopted by the parliament of the
South African Republic in 1874. Following the British victory in the second Anglo-Boer war in
1902, this legislation was replaced by the Transvaal Companies Act (1909). Most of these laws
contained some rudimentary accounting prescriptions and the requirement for external audit. The
patchwork of disparate colonial-period statutes among the four founding provinces would remain
in force until being repealed and replaced by the first South African Companies Act in 1926. This
act remained in place until 1973 when it was replaced with a new law that strengthened the
accounting standard setting process in South Africa by delegating it to the newly formed
133
APPENDIX
CORPORATE SCANDALS AND REGULATION
Accounting Practices Board (APB). The APB issued nationally applicable statements of
generally accepted accounting principles (GAAP). To re-enter the global economy and facilitate
foreign investment, the government began to take steps toward increased harmonization between
South African GAAP and International Financial Reporting Standards (IFRS) in the 1990s. In
2003, the APB de facto mandated the adoption of IFRS for listed and unlisted firms by issuing
IFRS standards as South African GAAP without amendments. Revisions to the Companies Act in
2011 replaced the APB with the Financial Reporting Standards Council (FRSC), and effectively
replaced South African GAAP with IFRS.
A21.2.!Data Collection
Our main resource for the data collection is The Rand Daily Mail, a well-respected daily
newspaper published in Johannesburg (https://en.wikipedia.org/wiki/The_Rand_Daily_Mail). It
was founded in 1902 and ceased publication in 1985. We accessed the historical editions of this
newspaper through the NewsBank data provider, which offers a consistent digitized archive for
The Rand Daily Mail beginning in 1940. Thus, 1940 marks the beginning of the time-series
analysis of media mentions. To expand our data collection backwards, we considered various
early South African newspapers contained in NewsBank (e.g., The Journal or Natal Witness) as
well as international news outlets from the U.K. and the Netherlands (representing the colonial
history of South Africa). This procedure allowed us to extend the data collection back to 1880,
and we could identify several episodes of scandals in these early years. For the more recent
period, we searched the archives of Business Day, a leading South African business newspaper
founded in 1985 (https://en.wikipedia.org/wiki/Business_Day_(South_Africa)). Because the first
ten years of Business Day were not available in electronic format, we had to manually search the
microfilmed version instead. The electronic archive for all news outlets allows for key word
search, and we screened every article containing the search terms for potential episodes of
scandals that met our definition. We then conducted another search using the company names
and time-periods identified to assess the economic importance of the events.
We relied on a detailed survey of the secondary literature for regulation. This procedure
allowed us to identify the major national laws pertaining to company formation and accounting.
We also considered periodic updates regarding newly issued accounting legislation published by
134
APPENDIX
CORPORATE SCANDALS AND REGULATION
the large audit firms and the website of the South African Institute of Chartered Accountants
(SAICA) in our search. Table A21.1 provides additional details on the data collection procedure.
A21.3.!Data Description
In Figure A21.1 we graphically plot the mentions of “Scandal” and “Regulator” in the
historical archives of The Rand Daily Mail (1940-1985) and Business Day (1997-2015). Both
newspapers are not available in electronic format for the entire time of their existence, and
therefore the (interrupted) time series covers the years 1940 to 2015. We used the exact terms in
the key word search (plus a few additional terms), regardless whether they appeared on the front
page, in the headlines, or the body of the article. The mentions of both terms start out at low
levels but sharply increase beginning in 1970. The mentions of “Scandal” peak in 1979. The
mentions of “Regulator” reach their highest level in 1975. The two time-series are positively
correlated with a correlation coefficient of 61% over the entire period.
Table A21.2 reports descriptive statistics on the incidents of corporate scandals and
accounting regulation by decade identified for South Africa. The data covers the period 1880 to
2015. We could identify 97 corporate scandals and 40 regulatory acts. The number of corporate
scandals is relatively high compared to some of the other sample countries. During the last two
decades of the 19th century, we observe many instances of financial misconduct. Another
substantial wave of corporate scandals occurred in the 1990s, and likely reflects the new
political, social, and economic climate in South Africa after the end of the apartheid regime. The
regulatory activity was more evenly distributed over time, but also showed a peak in the early
2000s. This period coincided with South Africa’s adoption of IFRS.
135
APPENDIX
CORPORATE SCANDALS AND REGULATION
FIGURE A21.1
Media Mentions of the Terms “Scandal” and “Regulator” from 1940 to 2015 in South Africa
387..
:;#'<#*
=">?*#+&$
38...
!"#$%&'()&$$"*#+,&'%162.(+&(3.17
./012
164.(+&(3.17
./345
187..
18...
7..
.
162.
167.
160.
164.
169.
166.
3...
3.1.
The figure plots the yearly number of incidents the terms “scandal” and “regulator” are mentioned in the business
press. We plot the results from searching the South African newspapers The Rand Daily Mail (1940 to 1985) and
Business Day (1997 to 2015). We use the terms “scandal,” “fraud,” and “misconduct” together with “regulator,”
“regulation,” and “company law.” Electronic newspaper data are missing for the years 1986 to 1996. We also
indicate the contemporaneous Pearson correlation coefficients between the two time-series over the entire period as
well as over various sub-periods.
136
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A21.1
Overview of Data Collection Procedure in South Africa
1. Earliest year of data collection and time period coverage:
Coverage: 1880 to 2015
Start date: January 1, 1880
2. Data sources, time period used for search, and data accessibility:
Period 1880 to 1985:
-! The Rand Daily Mail (1905 to 1910; 1940 to 1985); online archive through NewsBank ($; E)
-! Other newspaper sources used: The Journal (1880 to 1913); Natal Witness (1880 to 1885); Friend of the Free
State and Bloemfontein Gazette (1880 to 1890); Indian Opinion (1903 to 1922); various (1880 to 1939);
online archive through NewsBank ($, E): http://www.readex.com/content/african-newspapers-series-1-and-21800-1925-0
Period 1986 to 2015:
-! Business Day* (1986 to 1996): onsite access to newspaper microfilms at Northwestern University (M); (1997
to 2015): online archive through NewsBank ($; E)
3. Key search terms (main terms only):
Scandal: scandal, fraud, misconduct, embezzlement, theft
Accounting scandal/fraud: accounting scandal, accounting fraud, corporate scandal, corporate fraud, financial
misconduct
Earnings management: earnings management, earnings manipulation, accounting manipulation, creative
accounting
Regulator: regulator, regulation, legislator, legislation, law, decree, order
Accounting regulation: accounting regulation, disclosure regulation, GAAP, generally accepted accounting
principles, accounting rules, bookkeeping regulation, bookkeeping rules
Securities regulation/law: securities regulation, securities law, financial markets oversight, company law
4. Special remarks about data collection:
-! Our main source, the Rand Daily Mail, was only consistently available in electronic format over the 1940 to
1985 period. The digitization process has not yet been completed for the earlier years.
-! In the years before 1940, we used various South African newspapers (as they were available in NewsBank)
for the search. We complemented these results with searches in the U.K. Financial Times and in Dutch
newspapers available through the Delpher archive (http://www.delpher.nl).
-! For the period 1986 to 1996, only microfilm versions of the newspaper Business Day were available. Thus,
we limited the search to the front page and the first page of the business section during this period.
5. Secondary literature (main resources):
AICPA. 1975. Republic of South Africa. In: International Practice Executive Committee (ed.). Professional
Accounting in 30 Countries. American Institute of Certified Public Accountants: New York, NY: 509–529.
Verhoef, G. 2012. Economic integration through knowledge integration: The impact of IFRS on the
globalisation of accounting firms and corporate business in South Africa. Working paper, University of
Johannesburg.
Verhoef, G. 2014. Globalisation of knowledge but not opportunity: closure strategies in the making of the
South African accounting market, 1890s to 1958. Accounting History 19: 193–226.
Verhoef, G., and L. van Vuuren. 2012. Chapter 6: South Africa. In: Previts, G., P. Walton, and P. Wolnizer
(eds.). A Global History of Accounting, Financial Reporting and Public Policy: Eurasia, the Middle East
and Africa. Emerald Group Publishing: Bingley, UK: 135–181.
6. Research assistant (RA) and local country expert (CE):
RA: Joris de Kok, Wageningen University;
CE: Professor Grietjie Verhoef, University of
Benjamin Miller, Northwestern University
Johannesburg
(Continued)
137
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A21.1—Continued
7. Examples of corporate scandals:
Rand Companies (1889) Other scandal: Management and directors of the mining company were accused of
manipulating stock prices to their own benefit. It was alleged that the company
could put out three times as much gold as it did at the time, but that management
purposefully kept down the mining yield to depress stock prices. Afterwards,
management bought shares at deflated prices and started to increase mining yields
with the goal to raise stock prices.
Wholesale scandal
Accounting scandal: The owner of a ‘wholesale warehouse’ (which was set up
(1922)
solely for the scam) drew up a fictitious balance sheet to get an investment from a
bank. He then opened several retail stores with accomplices, and these stores
bought merchandise from the warehouse at overstated prices. The retail store
owners took out loans to pay for the purchases and used the (overpriced)
merchandise as collateral. This scam remained undetected for several years.
Ghavalas Option (2006)
Accounting scandal: Peter Ghavalas, a former general manager of an investment
bank, masterminded a massive pension fraud. The scheme utilized a series of
fraudulent sales and merger transactions to siphon off surplus pension funds (i.e.,
fund assets exceeded the actuarial liabilities at the time) from several firms. Much
of the fraud took place in the 1990s, but was only made public in 2006.
8. Examples of accounting regulation:
Cape of Good Hope
Accounting regulation: The act instituted some basic accounting principles like the
Companies Act
requirement to keep account of the company shares, the money received and
(1892)
expended, and the credits and liabilities. A balance sheet and income statement had
to be submitted to the general meeting of shareholders once a year. The law also
prescribed the annual audit of the company accounts.
Public Accountants’ and Accounting regulation: The law established the Public Accountants’ and Auditors’
Auditors’ Act
Board (PAAB), with whom all accountants in public practice had to register.
(1951)
Through this act, the responsibility for examinations and qualifications of
accountants in South Africa shifted to the PAAB.
Insider Trading Act
Other regulation: The law prohibited individuals who have inside information
(1998)
relating to securities or financial instruments from dealing in such securities,
imposed criminal and civil law penalties for such dealing, and empowered the
Financial Services Board (FSB) to investigate suspected insider trading
transactions.
The table provides general information on the time period, data sources, search terms, and secondary literature used
in the data collection. An asterisk (*) indicates a premier (business) newspaper outlet in a country; a dollar sign ($)
indicates that the electronic archive does not offer free access, but needs a subscription; E stands for electronic
archive that is accessible through key word search; M stands for archive that requires manual search. The table also
lists a few illustrative examples of corporate scandals and accounting regulations identified in the search.
138
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A21.2
Incidents of Corporate Scandals and Accounting Regulation in South Africa by Decade
Corporate Scandals
Decade
1880
1890
1900
1910
1920
1930
1940
1950
1960
1970
1980
1990
2000
2010
Total
Accounting
3
0
2
1
1
0
0
0
0
1
1
11
6
0
26
Near
Accounting
3
1
3
1
0
0
0
0
1
0
1
6
3
0
19
Accounting Regulation
Other
Total
7
5
0
0
0
0
1
0
1
1
2
29
4
2
52
13
6
5
2
1
0
1
0
2
2
4
46
13
2
97
Accounting
0
3
4
0
1
0
0
1
0
3
2
2
7
3
26
Other
0
0
3
0
1
0
0
0
0
1
1
3
4
1
14
Supranational
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Total
0
3
7
0
2
0
0
1
0
4
3
5
11
4
40
The table reports the number of corporate scandals and accounting regulations by decade and type for South Africa
over the 1880 to 2015 period (N = 136 years). For the empirical analyses, we classify the corporate scandals that we
identified in the data collection as either “accounting scandal”, “near accounting scandal”, or “other scandal” and the
regulatory actions as either “accounting regulation”, “other regulation”, or “supranational regulation.” See Section 2
of the main text for details. If feasible, we measure corporate scandals in the year they are first covered in the
financial press, and accounting regulation in the year it is enacted.
139
APPENDIX
CORPORATE SCANDALS AND REGULATION
A22.! Spain
A22.1.! Overview
Spain’s war of independence from Napoleonic France (1808-1814) marked the beginning of
a century of political and economic instability. The Code of Commerce of 1829 formally
recognized the statute of limited liability companies, but restrictions and onerous administrative
burdens prevented the widespread use of this corporate form. A series of amendments loosened
some of these restrictions for select industries (e.g. railroad, banking, and mining), but only to be
reinstated by the monarchy after the fall of the First Spanish Republic. In 1885, a new
Commercial Code required government registration for incorporated firms and reformulated
basic accounting rules. At the turn of the century, Spain’s economic situation worsened because
of large government indebtedness from waging costly overseas wars and the subsequent loss of
Spanish colonies as a source of income. Spain remained neutral during World War I, which
brought a brief period of economic relief. In the worsening economic situation of the Great
Depression, Spanish politics became increasingly chaotic. After the short reign of the Second
Spanish Republic, the Spanish Civil War broke out (1936-1939). In 1939, General Franco
emerged victorious and established a fascist military dictatorship. After World War II, the
country increased state intervention in the economy amid political and economic isolation.
From the 1950’s through the end of the dictatorship in 1975, the Spanish government took
modest steps toward economic reform, including revisions to corporate law, tax reform, and a
decree in 1959, which promised a “new economic order.” After the death of Franco, Spain
transitioned to a parliamentary monarchy and adopted a new constitution. In 1986, Spain joined
the European Economic Community (EEC) and, in the years that followed, implemented
economic reforms to harmonize Spanish company law with EEC directives on financial
reporting. As a member of the European Union (EU), Spain required all listed companies to
adopt International Financial Reporting Standards (IFRS) for the consolidated accounts as of
January 1, 2005. Non-listed firms must also use IFRS in the consolidated accounts. In all cases,
single entity or parent-only accounts have to be prepared under local GAAP, which was
reformed in 2007 to harmonize it with IFRS. Since 1998, the Spanish Securities and Exchange
Commission (CMNV) has published several codes of good corporate governance, the latest in
2015.
140
APPENDIX
CORPORATE SCANDALS AND REGULATION
A22.2.!Data Collection
We start our data collection in 1881 with the first issue of La Vanguardia, a major Spanish
daily newspaper (https://en.wikipedia.org/wiki/La_Vanguardia). La Vanguardia, headquartered
in Barcelona and the leading print outlet in the region of Catalonia, is a general-interest
newspaper with national coverage and reach. The three national newspapers El País (1976), El
Mundo (1989), and ABC (1903) are also available in electronic format, but do not have a timeseries going back to the 19th century. The digitized archive of La Vanguardia allows for
electronic keyword searches, but due to the limited Boolean search functionality, the results
combining two or more terms (e.g., “accounting” AND “scandal”) generate many irrelevant
articles containing just one of the two terms (but on the same page with the other term). Thus, to
pare down the large number of hits, we limited the search to headlines in the more recent years.
We then screened each article for potential scandals that met our definition. After 1978, we
supplemented
the
search
with
articles
from
the
online
archive
of
Cinco
Días
(https://en.wikipedia.org/wiki/Cinco_D%C3%ADas), one of Spain’s premier business outlets.
We gauge the importance of each scandal by checking whether it was mentioned in the press
multiple times, or we could also identify it from secondary sources.
We relied on a survey of secondary literature for regulatory activity. We identified the major
national laws and EU Directives on accounting regulation. We also surveyed select institutions
that helped to improve accounting regulation in Spain like the Instituto de Contabilidad y
Auditoria de Cuentas (ICAC; Institute of Accounting and Audit). The ICAC is an independent
body affiliated with the Spanish ministry of finance that oversees accounting regulation and
standard setting. Table A22.1 provides additional details on the data collection procedure.
A22.3.!Data Description
In Figure A22.1 we graphically plot the mentions of “Scandal” and “Regulator” in the
historical archives of La Vanguardia. The newspaper was founded in 1881 and therefore the time
series covers the years 1881 to 2015. We used the Spanish translations of our broad search terms
as well as some terms that capture the same underlying construct for the analysis. We observe a
steady increase in the mentions of both terms until 1970, interrupted only by the Spanish civil
war. Over the last 45 years of the sample period, the two time-series became more volatile (at
higher levels) with a first peak in 1974, a second in 1997, and a third in 2013. The mentions of
141
APPENDIX
CORPORATE SCANDALS AND REGULATION
“Regulator” typically outpace the mentions of “Scandal.” The two terms are highly correlated
with a correlation coefficient of 90% over the entire period. Only in the years 1970 to 2015, the
correlation slightly weakens to about 48%.
Table A22.2 reports descriptive statistics on the incidents of corporate scandals and
accounting regulation by decade identified for Spain. The data covers the period 1881 to 2015.
We could identify 62 corporate scandals and 42 regulatory acts. The corporate scandals are a
recent phenomenon with the majority occurring after 1980. The regulatory activity was more
evenly distributed over time with 14 regulatory acts before 1980, but also showed a peak in the
early 2000s. This period coincided with the country-specific implementation of several
supranational directives and laws.
142
APPENDIX
CORPORATE SCANDALS AND REGULATION
FIGURE A22.1
Media Mentions of the Terms “Scandal” and “Regulator” from 1881 to 2015 in Spain
89...(
:;#'<#*(
=">?*#+&$(
69...(
!"#$%&'()&$$"*#+,&'%7447(+&(3.78
./0.1
./2.3
7447(+&(7018
19...(
706.(+&(3.78
702.(+&(3.78
./453
./641
39...(
79...(
.(
744.(
740.(
70..(
707.(
703.(
701.(
706.(
708.(
705.(
702.(
704.(
700.(
3...(
3.7.(
The figure plots the yearly number of incidents the terms “scandal” and “regulator” (or the local equivalents) are
mentioned in the business press. We plot the results from searching the Spanish newspaper La Vanguardia over the
period 1881 to 2015. We use the terms “scandal” (“escándalo”, “fraude”, and “manipulación”) and “regulator”
(“regulador” and “regulación”). We exclude the period of the Spanish Civil War (1936 to 1939). We also indicate
the contemporaneous Pearson correlation coefficients between the two time-series over the entire period as well as
over various sub-periods.
143
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A22.1
Overview of Data Collection Procedure in Spain
1. Earliest year of data collection and time period coverage:
Coverage: 1881 to 2015 (without 1936 to 1939)
Start date: February 1, 1881
2. Data sources, time period used for search, and data accessibility:
-! La Vanguardia (1881 to 2015); online newspaper archive ($; E): http://www.lavanguardia.com/hemeroteca
-! Cinco Días* (1978 to 2015); online newspaper archive ($; E):
http://www.kioskoymas.com/publicacion/portada/cinco_dias/2248
3. Key search terms and translations into local language (main terms only):
Scandal: escándalo, fraude, incidente, manipulación, falsificación, estafa
Accounting scandal/fraud: escándalo relativo a la contabilidad, fraude contable, escándalo corporativo, fraude
corporativo, manipulación de las cuentas, mala conducta financiera
Earnings management: gestión de las ganancias, manipulación de las ganancias, mentir acerca de la
contabilidad
Regulator: regulador, controlador, inspector, legislador, regulación, legislación
Accounting regulation: legislación sobre la contabilidad, legislación sobre la ‘transparencia’
Securities regulation/law: legislación sobre los títulos, legislación sobre los valores, ley sobre los títulos, ley
sobre los valores, legislación AND negocio, legislación AND empresa
4. Special remarks about data collection:
-! The La Vanguardia newspaper is from the Catalan region, but nonetheless has a broad coverage of national
and international news and is sold all over Spain. It is, by far, the oldest newspaper with a circulation that is
comparable to the (much younger) national news outlets such as El País, El Mundo, or ABC.
-! We cross-checked many of the scandals found in La Vanguardia with other newspaper outlets, mainly ABC.
-! A Boolean search in the electronic archive of La Vanguardia identifies the page and not a specific article that
contains the search terms.
-! No suitable newspaper coverage during the Spanish Civil War.
-! Under the fascist dictatorship established after the civil war, the state controlled many companies considered
essential to the Spanish economy. Moreover, the news that appeared in the media was heavily censored.
Thus, we might miss some scandals that did not receive adequate press coverage.
5. Secondary literature (main resources):
Carmona, S., and M. Macias. 2001. Institutional pressures, monopolistic conditions and the implementation of
early cost management practices: The case of the Royal Tobacco Factory of Seville (1820–1887). Abacus
37: 139–165.
Carrera, N. 2011. Creative accounting and financial scandals in Spain. In: Jones M. (ed.). Creative Accounting,
Fraud and International Accounting Scandals. John Wiley & Sons: West Sussex, UK: 325–357.
Giner Inchausti, B. 1993. Spain. European Accounting Review 2: 353–361.
Giner Inchausti, B. 1995. The history of financial reporting in Spain. In: Walton, P. (ed.). European Financial
Reporting: A History. Academic Press: Cambridge, MA: 203–219.
ICAC. 2013. Normativa Sobre Auditoría de Cuentas en España. 3rd edition. Instituto de Contabilidad y
Auditoría de Cuentas: Madrid, ES.
ICJCE. 2015. Normativa General de Contabilidad. Instituto de Censores Jurados de Cuentas de España:
Madrid, ES.
Lande, E. 1997. A comparative study of the normalization process in France and in Spain. In: Flower, J., and C.
Lefebvre (eds.). Comparative Studies in Accounting Regulation in Europe. Acco Publishers: Leuven, BE:
159–267.
Larrinaga, C., and M. Macias. 2010. Chapter 7: Spain. In: Previts, G., P. Walton, and P. Wolnizer (eds.). A
Global History of Accounting, Financial Reporting and Public Policy: Europe. Emerald Group Publishing:
Bingley, UK: 163–189.
6. Research assistant (RA) and local country expert (CE):
RA: Josep Maria Vilà Calopa, Universitat
CE: Professor Fernando Peñalva, IESE Business School,
Politècnica de Catalunya (ETSEIB)
University of Navarra
(Continued)
144
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A22.1—Continued
7. Examples of corporate scandals:
Sofico (1974)
Accounting scandal: The company falsified documents and inflated revenues by
recording the sale of (fictitious) real estate property multiple times.
Banco Espanol de
Accounting scandal: The bank’s chairman was accused of (and later found guilty
Credito (Banesto)
for) manipulating the firm’s income statement and balance sheet. The main issues
(1993)
were mismatches between revenues and expenses, overstatements of the purchase
price of investments, and the sale of assets at artificially low prices. In addition, the
chairman expropriated company funds for personal use.
FC Barcelona (2015)
Near accounting scandal: The football club playing in the Spanish premier league
(La Liga) was accused of engaging in complicated tax evasion schemes around the
signing of the Brazilian star forward Neymar. Payments were disguised in order to
avoid reporting and tax requirements.
8. Examples of accounting regulation:
Code of Commerce
Accounting regulation: The law improved existing accounting rules like the
(1885)
requirement to publish monthly balance sheets for join stock corporations or the
permission for shareholders to review a firm’s accounting records. It also implicitly
established the double-entry bookkeeping system as the preferred accounting
method.
Decree of September 20
Accounting regulation: The law required all companies registered with the
(1919)
commercial registrar (‘Registro Mercantil’) to file annual balance sheets within six
months of the end of the fiscal year.
Olivencia Report
Other regulation: A group of experts was tasked by the Spanish stock exchange
(1998)
commission to review the current state and develop recommendations of good
corporate governance. The recommendations were in line with the OECD standards
and, even though legally non-binding, firms had to assess the report’s impact on
their own corporate governance practices.
The table provides general information on the time period, data sources, search terms, and secondary literature used
in the data collection. An asterisk (*) indicates a premier (business) newspaper outlet in a country; a dollar sign ($)
indicates that the electronic archive does not offer free access, but needs a subscription; E stands for electronic
archive that is accessible through key word search. The table also lists a few illustrative examples of corporate
scandals and accounting regulations identified in the search.
145
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A22.2
Incidents of Corporate Scandals and Accounting Regulation in Spain by Decade
Corporate Scandals
Decade
1880
1890
1900
1910
1920
1930
1940
1950
1960
1970
1980
1990
2000
2010
Total
Accounting
0
0
0
0
1
0
0
0
1
2
5
4
5
2
20
Near
Accounting
0
0
0
0
0
2
0
0
0
0
0
5
6
6
19
Accounting Regulation
Other
Total
0
0
0
2
1
0
0
0
0
2
2
4
6
6
23
0
0
0
2
2
2
0
0
1
4
7
13
17
14
62
Accounting
1
0
3
1
0
0
0
0
2
3
2
2
2
4
20
Other
0
0
0
0
1
0
0
3
0
0
2
4
3
3
16
Supranational
0
0
0
0
0
0
0
0
0
0
2
0
4
0
6
Total
1
0
3
1
1
0
0
3
2
3
6
6
9
7
42
The table reports the number of corporate scandals and accounting regulations by decade and type for Spain over the
1881 to 2015 period (N = 131 years). For the empirical analyses, we classify the corporate scandals that we
identified in the data collection as either “accounting scandal”, “near accounting scandal”, or “other scandal” and the
regulatory actions as either “accounting regulation”, “other regulation”, or “supranational regulation.” See Section 2
of the main text for details. If feasible, we measure corporate scandals in the year they are first covered in the
financial press, and accounting regulation in the year it is enacted.
146
APPENDIX
CORPORATE SCANDALS AND REGULATION
A23.! Sweden
A23.1.! Overview
Sweden’s history and economic development is closely intertwined with that of neighboring
Scandinavian countries. Sweden encompassed the territory of modern Finland until it was lost to
Russia in 1809. From 1814 to 1905 the Swedish crown forced Norway into a personal union with
a common king and foreign policy. Between 1873 and 1914, Sweden, Denmark, and Norway
formed a monetary union, which pegged the exchange rates of the three countries against each
other. A hallmark of Swedish foreign policy has been the adherence to the principle of neutrality,
which has helped keeping the country out of international military conflicts since 1814. Sweden
is a constitutional monarchy but under the provisions of the 1974 Instrument of Government the
political power is delegated to the parliament (Riksdag). The government is led by the Prime
Minister who has the executive power.
The first statute explicitly mentioning bookkeeping in Sweden was the 1734 Code of Law,
which established that a merchant’s book of debts was admissible evidence in legal proceedings.
This law and a 1773 Royal Decree against the fraudulent altering of financial records were
incorporated into Sweden’s first Bankruptcy Act of 1818. Largely modelled on French and
German commercial codes, the Companies Act of 1848 introduced the legal construct of the
share-issuing company with limited liability. It required royal approval to form a limited liability
company, but lacked any provisions regarding the publication of annual financial statements. The
first comprehensive accounting legislation was passed in 1855. Among other things, it contained
the requirement to keep track of inventory and prepare a balance sheet. A revision to the
companies act in 1910 introduced the auditing requirement for financial accounts.
In 1928/29, the corporate tax system was overhauled and implicitly linked to the financial
accounts, in line with contemporaneous German accounting principles. Consequently,
accounting practice resulted in valuation principles favoring tax-reducing valuations that led to
the creation of so-called “hidden reserves.” These tax-based valuations made the use of financial
statements for profitability and risk analysis difficult. Over time, large Swedish companies like
Volvo started to voluntarily disclose inventory reserves to overcome this information gap, but the
regulators did not follow suit until the Accounting Act of 1976, which improved the disclosures
regarding hidden reserves (but did not eliminate them altogether). The revision of the companies
147
APPENDIX
CORPORATE SCANDALS AND REGULATION
act in 1944 considerably extended government oversight and firms’ informational reporting
requirements. In 1975/76, in coordination with other Nordic countries, accounting legislation
shifted more toward a principles-based approach, but several key features of the German heritage
like the prudence principle, the realization principle, or the historical cost approach prevailed. In
1995, Sweden joined the European Union (EU). From that point on, legislation regarding
accounting and financial statements is deeply influenced by the corresponding EU directives.
Most notably, Sweden required firms listed on EU-regulated markets to prepare their financial
statements in accordance with International Financial Reporting Standards (IFRS) from 2005
onwards.
A23.2.!Data Collection
We start our data collection in 1831. For the initial time period, we used the digitized
version of the daily newspaper Aftonbladet (https://en.wikipedia.org/wiki/Aftonbladet; formerly
known as Aftonbladet i Stockholm), which nowadays is a semi-tabloid published in Stockholm.
Starting in 1884, our main resource was the Svenska Dagbladet, a leading daily newspaper in
Sweden (https://en.wikipedia.org/wiki/Svenska_Dagbladet). The digitized archive is keywordsearch enabled, and let us identify many relevant articles that we each analyzed in detail. For the
period from 1976 onwards, we also included the Swedish financial and business newspaper
Dagens Industri in the search (https://en.wikipedia.org/wiki/Dagens_Industri). We accessed all
newspaper resources either on site at the National Library of Sweden or through the library’s
online system. To gauge the economic importance of the scandals identified, we checked
whether they were mentioned in the media multiple times and/or covered by secondary sources.
We relied on a detailed survey of the secondary literature for regulation. This procedure
allowed us to identify the major national laws pertaining to commerce or accounting and, in later
years, the steps taken by the Swedish government to implement the various EU accounting
directives. We also surveyed select professional and governmental institutions that helped to
improve accounting practice and regulation like the Swedish Association for Certified Auditors
(Föreningen Auktoriserade Revisorer, FAR) or the Swedish Accounting Standards Board
(Bokföringsnämnden). For instance, even though the FAR’s recommendations did not have legal
status, they typically evolved into industry standards, and most larger Swedish firms followed
148
APPENDIX
CORPORATE SCANDALS AND REGULATION
them on a voluntary basis. Table A23.1 provides additional details on the data collection
procedure.
A23.3.!Data Description
In Figure A23.1 we graphically plot the mentions of “Scandal” and “Regulator” in the
historical archives of the Svenska Dagbladet. The newspaper was founded in 1884 and therefore
the time series covers the years 1884 to 2015. We used the Swedish translations of our broad
search terms as well as some terms that capture the same underlying construct for the analysis.
We observe two pronounced peaks in the mentions of “Regulator” over time, one in 1904 and
one in 1995. The mentions of “Scandal” typically fall below the mentions of “Regulator,” except
for the period from 1945 to 1980. The correlation coefficient between the two time-series is 60%
over the entire period and 55% from 1970 onwards, which is lower than what we observe in
some of the other countries.
Table A23.2 reports descriptive statistics on the incidents of corporate scandals and
accounting regulation by decade identified for Sweden. The data covers the period 1831 to 2015.
We could identify 83 corporate scandals and 34 regulatory acts. While we observed episodes of
scandals in almost any decade of the sample period (except for some of the earliest years), the
scandals became much more frequent beginning in the 1970s. The number peaks in the first ten
years of the 21st century. The regulatory activity was more evenly distributed over time, but also
showed a peak around 2000. The last few years coincided with the country-specific
implementation of several supranational directives and laws.
149
APPENDIX
CORPORATE SCANDALS AND REGULATION
FIGURE A23.1
Media Mentions of the Terms “Scandal” and “Regulator” from 1884 to 2015 in Sweden
4..
9:#';#*
0..
<"=>*#+&$
!"#$%&'()&$$"*#+,&'%1445(+&(6.13
./0.1
1445(+&(1753
./2.1
1750(+&(6.13
./002
178.(+&(6.13
./33.
5..
6..
.
144.
147.
17..
171.
176.
172.
175.
173.
170.
178.
174.
177.
6...
6.1.
The figure plots the yearly number of incidents the terms “scandal” and “regulator” (or the local equivalents) are
mentioned in the business press. We plot the results from searching the Swedish newspaper Svenska Dagbladet over
the period 1884 to 2015. We use the terms “scandal” (“skandal”) together with “regulator” (“reglerande”),
“regulation” (“regelverk” or “reglemente”), or “supervisory authority” (“tillsynsmyndighet”). We also indicate the
contemporaneous Pearson correlation coefficients between the two time-series over the entire period as well as over
various sub-periods.
150
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A23.1
Overview of Data Collection Procedure in Sweden
1. Earliest year of data collection and time period coverage:
Coverage: 1831 to 2015
Start date: January 3, 1831
2. Data sources, time period used for search, and data accessibility:
-! Svenska Dagbladet (1884 to 2015); online archive through national library of Sweden (E):
http://tidningar.kb.se/?newspaper=SVENSKA%20DAGBLADET
-! Aftonbladet (1831 to 2015); online archive through national library of Sweden (E):
http://tidningar.kb.se/?newspaper=AFTONBLADET
-! Dagens Industri* (1976 to 2015); online archive through national library of Sweden (E):
http://tidningar.kb.se/?newspaper=DAGENS%20INDUSTRI
3. Key search terms and translations into local language (main terms only):
Scandal: Skandal, svindleri (scam), bedrägeri (fraud), fusk (cheating)
Accounting scandal/fraud: Redovisningsskandal, aggressiv redovisning, bokföringsbrott, bedräglig finansiell
rapportering, företagsskandal, bolagsskandal, bolagsbedrägeri, ekonomisk oegentlighet
Earnings management: Redovisningsmanipulation, resultatmanipulering, kreativ bokföring
Regulator: Reglerande, regelskapare, reglering, regelverk, reglemente, tillsynsmyndighet, regleringsmyndighet,
lagstiftare
Accounting regulation: Redovisningsstandard, regelverk för redovisning, redovisningsregler,
årsredovisningslag, bokföringslag, bokföringsregler, upplysningskrav
Securities regulation/law: Lag om värdepappersmarknader, bolagsrätt, företagslag, börsmyndighet
4. Special remarks about data collection:
-! The database that we use for the search (http://tidningar.kb.se) contains digitized versions of the newspapers
and then utilizes a software for text recognition. Sometimes, this software misses correct expressions because
of slight differences in spelling, or it indicates matches even though there were none.
-! When searching for multiple terms, the database only identifies the page containing these terms, but not the
individual article.
-! IFRS adoption in 2005 is often seen as marking a shift in paradigm of Swedish accounting practice and
regulation. Before the move, there was a consensus that the accounting regime should evolve without too
much interference from the legislators but rather based on voluntary agreements and recommendations by
various non-governmental accounting bodies like the FAR. Thereafter, the regulatory process is much more
explicit and in line with international procedures.
5. Secondary literature (main resources):
Artsberg, K. 2010. Chapter 8: Sweden. In: Previts, G., P. Walton, and P. Wolnizer (eds.). A Global History of
Accounting, Financial Reporting and Public Policy: Europe. Emerald Group Publishing: Bingley, UK: 191–
216.
Heurlin, S., and E. Peterssohn. 2003. Chapter 17: Sweden. In: Alexander, D., and S. Archer (eds.). European
Accounting Guide (5th ed.). Aspen Publishers: New York, NY: 17.01–17.26.
Jönsson, S., and J. Marton. 1994. Chapter 6: Sweden. In: Flower, J. (ed.). The Regulation of Financial
Reporting in the Nordic Countries. Center for Research in European Accounting: Stockholm, Sweden: 181–
230.
Nilsson, S. 1995. The history of financial reporting in Sweden. In: Walton, P. (ed.). European Financial
Reporting: A History. Academic Press: London, UK. 221–239.
Nilsson, S., and M. Smiciklas. 1993. Sweden. European Accounting Review 2: 362–365.!
Rimmel, G., and K. Jonäll. 2011. Accounting scandals in Sweden – A long tradition. In: Jones, M. (ed.).
Creative Accounting, Fraud and International Accounting Scandals. John Wiley & Sons: West Sussex, UK:
359–377.
Wallerstedt, E. 2009. Revisorsbranschen i Sverige under hundra år. SNS förlag: Stockholm, Sweden.
6. Research assistant (RA) and local country expert (CE):
RA: Péter Aleksziev, Stockholm School of Economics
CE: Professor Kenth Skogsvik, Stockholm School of
Economics
(Continued)
151
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A23.1—Continued
7. Examples of corporate scandals:
Omnibusbolaget (1899)
Accounting scandal: The manager of the transportation company falsified firm
accounts to his own benefit, which was brought to the public’s attention during the
annual meeting by the company’s auditor.
Fermenta (1986)
Accounting scandal: The firm reported inflated sales numbers and recognized
fictitious revenues in the prospectus for the pending initial public offering. The
CEO later also had to reveal that he had not earned a PhD as claimed in the filings.
Alfred Berg (1994)
Other scandal: Multiple employees of the brokerage firm were accused of serious
tax evasion. They reported fictitious losses from option transactions which they
netted against financial profits to avoid paying taxes. Moreover, a member of top
management used company funds for unauthorized speculation with stock options.
8. Examples of accounting regulation:
Accounting Act
Accounting regulation: Introduced the requirement to keep accounts including an
(1855)
inventory and to prepare a balance sheet within six months of the end of the fiscal
year.
Ethical Guidelines on
Accounting regulation: In what was seen as a reaction to recent market failures, the
Auditing by FAR
Swedish Association for Certified Auditors (FAR) introduced ten ethical guidelines
(1933)
on the auditing process. Even though these recommendations were non-binding,
they evolved into an industry standard, and many companies adopted them on a
voluntary basis.
Accounting Act
Accounting regulation: The revision to the law introduced expanded disclosure
(1976)
requirements and established group accounting rules. It also required additional
disclosures regarding understated assets, which were computed using tax rules to
serve as basis for the measurement of taxable income.
The table provides general information on the time period, data sources, search terms, and secondary literature used
in the data collection. An asterisk (*) indicates a premier (business) newspaper outlet in a country; a dollar sign ($)
indicates that the electronic archive does not offer free access, but needs a subscription; E stands for electronic
archive that is accessible through key word search. The table also lists a few illustrative examples of corporate
scandals and accounting regulations identified in the search.
152
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A23.2
Incidents of Corporate Scandals and Accounting Regulation in Sweden by Decade
Corporate Scandals
Decade
1830
1840
1850
1860
1870
1880
1890
1900
1910
1920
1930
1940
1950
1960
1970
1980
1990
2000
2010
Total
Accounting
0
0
0
0
0
1
1
0
0
1
1
0
0
0
2
5
4
11
4
30
Near
Accounting
0
0
0
0
0
0
1
0
0
2
1
1
1
0
1
2
3
3
3
18
Accounting Regulation
Other
Total
0
1
0
0
1
1
0
1
1
0
0
0
0
0
3
10
6
10
1
35
0
1
0
0
1
2
2
1
1
3
2
1
1
0
6
17
13
24
8
83
Accounting
0
0
1
0
0
0
1
0
0
2
2
0
1
2
1
2
3
2
0
17
Other
0
1
0
0
0
0
0
1
1
0
0
1
0
0
2
1
4
2
0
13
Supranational
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1
3
0
4
Total
0
1
1
0
0
0
1
1
1
2
2
1
1
2
3
3
8
7
0
34
The table reports the number of corporate scandals and accounting regulations by decade and type for Sweden over
the 1831 to 2015 period (N = 185 years). For the empirical analyses, we classify the corporate scandals that we
identified in the data collection as either “accounting scandal”, “near accounting scandal”, or “other scandal” and the
regulatory actions as either “accounting regulation”, “other regulation”, or “supranational regulation.” See Section 2
of the main text for details. If feasible, we measure corporate scandals in the year they are first covered in the
financial press, and accounting regulation in the year it is enacted.
153
APPENDIX
CORPORATE SCANDALS AND REGULATION
A24.! Switzerland
A24.1.!Overview
Prior to the establishment of the Swiss federal state in 1848, Switzerland existed as a loose
confederation of 25 sovereign states (“cantons”). The country has a history of armed neutrality
and has not been in a state of international war since 1815. Prior to 1848, each individual canton
was a separate seat of statutory authority and regulatory oversight. Consequently, regulations of
commercial activity were adopted by the cantons (e.g., the Civil Code of Berne of 1830, or the
Loi sur les Sociétés Anonymes of Geneva of 1849). The first attempts to create a standardized
commercial code applicable to all cantons began in 1862, resulting in the Federal Code of
Obligations of 1881. The law borrows heavily from contemporary German company laws, but
the Swiss legislation was much more liberal in its scope of accounting regulation. In 1936, the
statutory accounting requirements of the Code of Obligations were revised. The Swiss
accounting system was unique in that its commercial law contained statutory provisions allowing
the creation of so-called hidden reserves (i.e., purposeful understatements of a firm’s financial
position). Many Swiss firms were dominated by families or banks, and transparent reporting for
minority shareholders was less important than competition driven secrecy.
The next significant revision of the Code of Obligations occurred in 1991. The aim was to
improve transparency, strengthen investor protection, and prevent market abuses. The revisions
included new restrictions on the creation of hidden reserves and required the explicit disclosure
of their dissolution. The law also included the requirement to provide consolidated group
accounts. However, instead of prescribing the methods of consolidation and outlining the
accounting standards, the law only set out very limited general guidelines (i.e., the so-called
principles of proper financial reporting). Thus, while at the time not mandated by law, many
large public companies in Switzerland voluntarily adopted IAS (later: IFRS) or U.S. GAAP for
financial reporting purposes. The next revision of the Code of Obligation took effect in 2015. It
prescribed a minimum level of detail for the balance sheets and income statements and expanded
the content of the notes. By law, listed companies now must prepare their financial statements in
accordance with a recognized financial reporting standard (such as IFRS, U.S. GAAP, or Swiss
GAAP FER). Another defining political characteristic of Switzerland is its system of direct
democracy, in which citizens have a say on all legislative initiatives by means of compulsory or
154
APPENDIX
CORPORATE SCANDALS AND REGULATION
optional referendum. It was through such a national referendum that Switzerland opted to not
associate itself with the European Union (EU) in 1991.
A24.2.!Data Collection
We start our data collection in 1800 with digitized issues from the electronic archive of the
Neue Zürcher Zeitung (NZZ). The NZZ (https://en.wikipedia.org/wiki/Neue_Zürcher_Zeitung)
was founded in 1780 and is a leading German-language daily newspaper in Switzerland. It has an
extensive business coverage. The archive allows for keyword searches, but has limited tagging
and searchability in the early years (until 1994). In particular, searches for specific terms often
yield very few if any hits. Thus, to improve the results, we cast a wide net and search for very
broad terms like “fraud” in combination with “firm” using Boolean operators. This strategy let us
identify several scandals during the early period. We only included scandals for which there
were multiple mentions in the newspaper as well as scandals identified from secondary sources.
We relied on a survey of secondary literature to identify the major laws on accounting
regulation. In the 19th century, much of the regulatory action for limited liability corporations
took place at the state level, which led us to include the civil codes of several cantons in the
database. We also surveyed select private institutions that helped to improve accounting
regulation in Switzerland. For example, the Foundation for Accounting and Reporting
Recommendations issued the Swiss GAAP FER in the mid-1980s. What started as non-binding
recommendations promoting a true and fair view in financial statements evolved into widely
accepted accounting standards for public and private firms over time, and now is part of the set
of recognized financial reporting standards prescribed by law. Similarly, the listing requirements
of the Swiss exchange have attained a status that exceeds by far the scope and level of detail of
accounting regulation in the Swiss Code of Obligations. Table A24.1 provides additional details
on the data collection procedure.
A24.3.!Data Description
In Figure A24.1 we graphically plot the mentions of “Scandal” and “Regulator” in the
historical archives of the NZZ. Our time series covers the years 1800 to 2015. We used the
German translations of our broad search terms as well as some terms that capture the same
underlying construct for the analysis. Until the early 1990s the mentions of both terms hover
155
APPENDIX
CORPORATE SCANDALS AND REGULATION
around low levels, with “Regulator” generally outpacing “Scandals.” The correlation between
the two terms is only 48% in the years until the end of World War II. Corresponding with the
better tagging in the electronic archive of the NZZ, the mentions of both terms starkly increase
after 1993. Notably, “Scandal” is now on pace with “Regulator,” and clearly outnumbers the
mentions of “Regulator” in the late 1990s and early 2000s. The overall correlation is high with
96% and comparable to what we find in other countries.
Table A24.2 reports descriptive statistics on the incidents of corporate scandals and
accounting regulation by decade identified for Switzerland. The data covers the period 1800 to
2015. We were able to identify 53 corporate scandals and 36 regulatory acts. While there were a
few accounting scandals in the mid 19th century, and again in the early 1900s, the numbers really
increased over the last 25 years. The regulatory activity reflects the political history of the
country, with many actions taking place at the state level instead of the federal level in the first
half of the sample period. Moreover, supranational regulations are notably absent, as Switzerland
is not part of the EU and often decides on the adoption of international directives or laws (e.g.,
the adoption of IFRS) on a case-by-case basis.
156
APPENDIX
CORPORATE SCANDALS AND REGULATION
FIGURE A24.1
Media Mentions of the Terms “Scandal” and “Regulator” from 1800 to 2015 in Switzerland
1.(
9:#';#*(
3.(
<"=>*#+&$(
!"#$%&'()&$$"*#+,&'%./012
62..(+&(7.61
./342
62..(+&(6031
5.(
7.(
6.(
.(
62..(
626.(
627.(
625.(
623.(
621.(
628.(
624.(
622.(
620.(
60..(
606.(
607.(
605.(
603.(
7?...(
9:#';#*(
<"=>*#+&$(
6?1..(
!"#$%&'()&$$"*#+,&'%./013
6031(+&(7.61
./035
604.(+&(7.61
6?...(
1..(
.(
6031(
601.(
6011(
608.(
6081(
604.(
6041(
602.(
6021(
600.(
6001(
7...(
7..1(
7.6.(
7.61(
The figure plots the yearly number of incidents the terms “scandal” and “regulator” (or the local equivalents) are
mentioned in the business press. We plot the results from searching the Swiss newspaper Neue Zürcher Zeitung over
the period 1800 to 2015, with the years until 1945 in the upper panel and the years thereafter in the lower panel. We
use the terms “scandal” (“Skandal”, “Affäre”, or “Eklat”) and “fraud” (“Fälschung” or “Manipulation”) together
with “regulator” (“Gesetzgeber”, “Regulierer”, “Regulierung”, or “Regulierungsbehörde”), “company law” (i.e.,
“Aktienrecht” and “Gesetz” in combination with “Unternehmen”, “Unternehmung”, or “Firma”), and “exchange
supervisory body” (“Börsenaufsicht” or “Börsenaufsichtsbehörde”). We also indicate the contemporaneous Pearson
correlation coefficients between the two time-series over the entire period as well as over various sub-periods.
157
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A24.1
Overview of Data Collection Procedure in Switzerland
1. Earliest year of data collection and time period coverage:
Coverage: 1800 to 2015
Start date: January 7, 1800
2. Data sources, time period used for search, and data accessibility:
-! Neue Zürcher Zeitung* (1800 to 2015); online archive ($; E): http://zeitungsarchiv.nzz.ch
3. Key search terms and translations into local language (main terms only):
Scandal: Skandal, Affäre, Eklat
Accounting scandal/fraud: Bilanzskandal, Bilanzfälschung, Bilanzbetrug, Bilanzdelikt, Bilanzverschleierung,
Bilanzmanipulation, Bücherfälschung, Bilanz AND Skandal, Bilanz AND Betrug, Gewinn AND Skandal
Earnings management: Ergebnissteuerung, Ergebnismanipulation, Bilanzpolitik, Bilanzkosmetik, Bilanztricks,
Gewinnsteuerung, Gewinnmanipulation, Scheingewinn, Gewinn AND Manipulation
Regulator: Regulierer, Regulierungsbehörde, Börsenaufsicht, Börsenaufsichtsbehörde, Gesetzgeber
Accounting regulation: Bilanzierungsvorschriften, Rechnungslegungsvorschrift, Rechnungslegungsnorm,
Buchhaltungsvorschriften, Bilanzreform, Rechnungslegungsregel
Securities regulation/law: Wertpapierregulierung, Wertpapierrecht, Handelsrecht, Börsenrecht, Aktienrecht,
Kapitalmarktrecht, Aktiengesetz, Handelsgesetz, Börsenordnung, Aktiennovelle
4. Special remarks about data collection:
-! Continuous coverage over the entire period. However, the number of search results in the electronic archive
improves starkly after 1993.
-! Even though the Neue Zürcher Zeitung is available in electronic format, the searchability and readability of
documents from the 19th century is not comparable to a full-text searchable database with Boolean operators.
-! In earlier years, a Boolean search identifies the issue (and not a specific) article that contains the search
terms.
5. Secondary literature (main resources):
Achleitner, A.-K. 1995. The history of financial reporting in Switzerland. In: Walton, P. (ed.). European
Financial Reporting: A History. Academic Press: Cambridge, MA: 241–258.
Achleitner, A.-K., and R. Eberle. 2010. Chapter 9: Switzerland. In: Previts, G., P. Walton, and P. Wolnizer
(eds.). A Global History of Accounting, Financial Reporting and Public Policy: Europe. Emerald Group
Publishing: Bingley, UK: 217–242.
Koberg, A.-K. 1993. Switzerland. European Accounting Review 2: 366–369.
Lüpold, M. 2008. Der Ausbau der “Festung Schweiz”: Aktienrecht und Corporate Governance in der Schweiz,
1881-1961. PhD thesis. University of Zurich.
6. Research assistant (RA) and local country expert (CE):
CE: Prof. Dr. Reto Eberle, University of Zurich
RA: Selina Hartmann, University of Zurich
(Continued)
158
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A24.1—Continued
7. Examples of corporate scandals:
Schweizerische
Accounting scandal: The railway company falsified its ledger and share register
Ostwestbahn (1858)
when raising new funds from local state governments to hide is dire financial
situation.
Schweizerische
Near accounting scandal: Embezzlement of client funds, forgery of documents, and
Kreditanstalt (1977)
violation of the banking laws by managers of the bank’s branch in Chiasso led to a
loss of multiple hundred million Swiss francs.
Adecco (2004)
Accounting scandal: The firm was forced to delay the publication of its 2003
annual results by several months because of material weaknesses of internal
controls in one of its U.S. subsidiaries.
8. Examples of accounting regulation:
Zurich Civil Code
Accounting regulation: It required management to provide annual financial
(1855)
statements to investors and gives joint partners the right to view the books of the
firm.
Federal Code of
Accounting regulation: The new law which became effective on July 1, 1937,
Obligations (1937)
contained specific rules on sound bookkeeping practices that applied to all
incorporated business enterprises. The rules were governed by general principles
such as the completeness and clarity of financial reporting.
Listing requirements on
Accounting regulation: All listed companies had to provide a “true and fair view”
Swiss Exchange (1995)
of their financial statements. To be listed on a Swiss stock exchange, firms had to
report either under Swiss GAAP FER, International Accounting Standards (IAS), or
U.S. GAAP (essentially allowing the voluntary adoption of the latter two sets of
accounting standards).
The table provides general information on the time period, data sources, search terms, and secondary literature used
in the data collection. An asterisk (*) indicates a premier (business) newspaper outlet in a country; a dollar sign ($)
indicates that the electronic archive does not offer free access, but needs a subscription; E stands for electronic
archive that is accessible through key word search. The table also lists a few illustrative examples of corporate
scandals and accounting regulations identified in the search.
159
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A24.2
Incidents of Corporate Scandals and Accounting Regulation in Switzerland by Decade
Corporate Scandals
Decade
1800
1810
1820
1830
1840
1850
1860
1870
1880
1890
1900
1910
1920
1930
1940
1950
1960
1970
1980
1990
2000
2010
Total
Accounting
0
0
0
0
0
1
0
0
1
0
1
0
0
0
1
0
0
1
2
0
8
2
17
Near
Accounting
0
0
0
0
0
0
2
1
0
0
0
1
0
0
0
0
0
3
0
1
2
0
10
Accounting Regulation
Other
Total
0
0
0
0
0
0
0
0
1
0
1
1
0
1
1
0
0
2
6
4
6
3
26
0
0
0
0
0
1
2
1
2
0
2
2
0
1
2
0
0
6
8
5
16
5
53
Accounting
1
0
0
3
2
2
1
0
2
0
0
2
1
2
0
0
0
0
1
2
4
3
26
Other
0
0
0
0
0
0
1
0
0
0
0
0
0
0
0
0
0
1
0
3
5
0
10
Supranational
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Total
1
0
0
3
2
2
2
0
2
0
0
2
1
2
0
0
0
1
1
5
9
3
36
The table reports the number of corporate scandals and accounting regulations by decade and type for Switzerland
over the 1800 to 2015 period (N = 216 years). For the empirical analyses, we classify the corporate scandals that we
identified in the data collection as either “accounting scandal”, “near accounting scandal”, or “other scandal” and the
regulatory actions as either “accounting regulation”, “other regulation”, or “supranational regulation.” See Section 2
of the main text for details. If feasible, we measure corporate scandals in the year they are first covered in the
financial press, and accounting regulation in the year it is enacted.
160
APPENDIX
CORPORATE SCANDALS AND REGULATION
A25.! United Kingdom
A25.1.! Overview
Contrary to the code law system spread across Europe by Napoleon, in the U.K. of the 19th
century the regulation of the relationship between company owners and managers was a matter
of private contract rather than legal statute. Only a select few companies in industries of “public
interest” (e.g. railways, banks, and insurance companies) were subject to statutory reporting
requirements. These companies were incorporated either by Royal Charter or by private Acts of
Parliament (i.e., an act that applied to a specific company), and granted investors limited liability
protection. The Acts of Parliament spelled out the rights and obligations of the shareholders and
included basic record keeping and reporting provisions. For instance, the Regulation of Railways
Act of 1868 specified a standard form of accounts for railways corporations based on accounting
practices that had gained general acceptance over the preceding decades.
As a response to the increasing demand for external capital, the Joint Stock Companies Act
of 1844 (which was the first to apply to companies in general) required firms to register with the
government (without limited liability status). The act also contained basic provisions regulating
accounting and auditing, including the requirement to publish the accounts. A few years later, the
option of limited liability status was added. The 1855 Limited Liability Act included model
“articles of association,” “deeds of settlement,” and “regulations for the management of the
company,” which in practice most companies adopted either wholly or in part. The same applied
for the minimal accounting requirements included in these model regulations. The 1856 Joint
Stock Companies Act referred to accounting for a “true and correct view” of a firm’s financial
position. This principle, even though non-binding in nature, was widely adopted at the time
because of the growing influence of the stock market and the reporting requirements imposed by
stock exchange listing agreements. Eventually, the Companies Act of 1900 required all registered
companies to present audited balance sheets to shareholders every year.
The Companies Act of 1907 precluded private companies from being obligated to make their
financial information public. Because there did not exist a regulation for consolidated group
accounts, large public companies could conceal much of their activity by operating through
privately held subsidiaries. In December 1942, the Institute of Chartered Accountants in England
and Wales (ICAEW) began to issue a series of recommendations on accounting principles. They
161
APPENDIX
CORPORATE SCANDALS AND REGULATION
addressed technical issues but also dealt with broader aspects of financial reporting, such as asset
valuation, reserves and provisions, and the publication of group accounts. Although these were
non-binding recommendations, they influenced accounting legislation and practice. For instance,
the concept that financial statements should give a “true and fair view” of the state of affairs of a
company, and of its profits or losses as formulated in the Companies Act of 1947/1948 was
borrowed from the ICAEW. The Companies Act of 1967 eliminated the exempt status of private
firms, and subjected all companies to the same accounting, disclosure, and filing rules. In 1972,
the U.K. joined the European Economic Community (EEC). Shortly thereafter, the International
Accounting Standards Committee (IASC) was established in London. The British government
began to take a more active role in regulating accounting and enacted the provisions of the EEC
accounting directives. The mandatory adoption of International Financial Reporting Standards
(IFRS) in the European Union (EU) was supported by the U.K. and the other EU governments.
This support led to the EU-wide requirement for all listed companies to adopt IFRS for fiscal
years beginning on or after January 1, 2005.
A25.2.!Data Collection
We start our data collection in 1888 with the first digitized issue of the Financial Times
(https://en.wikipedia.org/wiki/Financial_Times), which is the premier business newspaper in the
U.K. (and Europe). The electronic archive allows for key word search, and we screened every
article containing the search terms for potential episodes of scandals that met our definition. We
then conducted another search using the company names and time-periods identified to assess
the economic importance of the event. For the period before 1888 (and going back to 1800), we
relied upon the extensive secondary literature documenting corporate scandals and misconduct in
the U.K. For the years after 1967, we supplemented our search with the list of companies under
investigation by the U.K. Department of Trade and Industry, a government agency responsible
for investigative and enforcement work regarding insolvency related corporate misconduct and
fraud. We cross-checked each published investigation with the Financial Times and only
included cases that received ample media coverage.
We relied on a detailed survey of the secondary literature for regulation. This procedure
allowed us to identify the major national laws pertaining to company formation, accounting rules
and, in later years, the steps taken by the U.K. legislature to implement the EU accounting
162
APPENDIX
CORPORATE SCANDALS AND REGULATION
directives. We also surveyed the online archives of the Financial Reporting Council (FRC), the
independent regulator responsible for promoting high quality corporate governance and
reporting. Table A25.1 provides additional details on the data collection procedure.
A25.3.!Data Description
In Figure A25.1 we graphically plot the mentions of “Scandal” and “Regulator” in the
historical archives of the Financial Times. The newspaper was founded in 1888 and therefore the
time series covers the years 1888 to 2015. We used the exact terms in the key word search,
regardless whether they appeared on the front page, in the headlines, or the body of the article.
We observe relatively low and stable levels of media mentions of both terms until about 1970.
Thereafter, the media mentions dramatically increase and peak in 2004. Over the last 20 years,
the mentions of “Regulator” outpace the mentions of “Scandal.” There is a low correlation
between the two time-series until World War II (5%), but the correlation is highly positive (on
the order of 90%) over the second half of the sample period.
Table A25.2 reports descriptive statistics on the incidents of corporate scandals and
accounting regulation by decade identified for the U.K. The data covers the period 1800 to 2015.
We could identify 222 corporate scandals and 56 regulatory acts. This number is high compared
to some of the other countries, which probably is also a function of the well-developed market
structure in the U.K. and the extensive coverage by newspapers and in the secondary literature.
We observe several waves of accounting scandals with early peaks around 1850 and 1900, but
the numbers increased substantially beginning in the 1970s. The regulatory activity was more
evenly distributed over time. It peaked in the early 2000s, which is the time when several
supranational directives and laws were implemented.
163
APPENDIX
CORPORATE SCANDALS AND REGULATION
FIGURE A25.1
Media Mentions of the Terms “Scandal” and “Regulator” from 1888 to 2015 in the United Kingdom
19...
:;#'<#*
795..
=">?*#+&$
!"#$%&'()&$$"*#+,&'%7666(+&(1.75
./012
7666(+&(7020
./.34
7034(+&(1.75
./0.5
708.(+&(1.75
./667
79...
5..
.
7665
7605
70.5
7075
7015
7025
7035
7055
7045
7085
7065
7005
1..5
1.75
The figure plots the yearly number of incidents the terms “scandal” and “regulator” are mentioned in the business
press. We plot the results from searching the U.K. newspaper Financial Times over the period 1888 to 2015. We
exclude the period of World War II (1940 to 1945). We also indicate the contemporaneous Pearson correlation
coefficients between the two time-series over the entire period as well as over various sub-periods.
164
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A25.1
Overview of Data Collection Procedure in the United Kingdom
1. Earliest year of data collection and time period coverage:
Coverage: 1800 to 2015 (without 1940 to 1945)
Start date: January 1, 1800
2. Data sources, time period used for search, and data accessibility:
-! Financial Times* (1888 to 2015); online newspaper archive ($; E): https://www.ft.com/ft-archive
3. Key search terms (main terms only):
Scandal: scandal, fraud, misconduct, embezzlement, theft
Accounting scandal/fraud: accounting scandal, accounting fraud, corporate scandal, corporate fraud, financial
misconduct
Earnings management: earnings management, earnings manipulation, accounting manipulation, creative
accounting
Regulator: regulator, regulation, legislator, legislation, law, decree, order
Accounting regulation: accounting regulation, disclosure regulation, GAAP, generally accepted accounting
principles, accounting rules, bookkeeping regulation, bookkeeping rules
Securities regulation/law: securities regulation, securities law, financial markets oversight, company law
4. Special remarks about data collection:
-! Before 1888 (i.e., starting date of the Financial Times), we identified incidents of scandals from the
secondary literature. There is a great deal of secondary literature on the U.K.
-! In the years after 1967, we also consider cases of corporate misconduct under investigation by the U.K.
Department of Trade and Industry.
-! No suitable newspaper coverage during World War II.
5. Secondary literature (main resources):
De Lacy, J. 2002. The Reform of United Kingdom Company Law. Cavendisk Publishing: London, UK.
Gwilliam, D, and R. Jackson. 2011. Creative accounting – The UK experience. In: Jones M. (ed.). Creative
Accounting, Fraud and International Accounting Scandals. John Wiley & Sons: West Sussex, UK: 379–406.
Napier, C. 1993. UK. European Accounting Review 2: 370–375.
Napier, C. 1995. The history of financial reporting in the United Kingdom. In: Walton, P. (ed.). European
Financial Reporting: A History. Academic Press: Cambridge, MA: 259–283.
Napier, C. 2010. Chapter 10: United Kingdom. In: Previts, G., P. Walton, and P. Wolnizer (eds.). A Global
History of Accounting, Financial Reporting and Public Policy: Europe. Emerald Group Publishing: Bingley,
UK: 243–273.
Nobes, C. 1991. Cycles in UK standard setting. Accounting and Business Research 21: 265–274.
Robb, G. 1992. White-Collar Crime in Modern England – Financial Fraud and Business Morality, 1845-1929.
Cambridge University Press: Cambridge, UK.
Sarna, D. 2010. History of Greed: Financial Fraud from Tulip Mania to Bernie Madoff. John Wiley & Sons:
Hoboken, NJ.
Toms, S. 2015. Fraud and financial scandals: a historical analysis of opportunity and impediment. Working
paper. University of Leeds.
Waymire G., and S. Basu. 2007. Accounting is an evolved economic institution. Foundations and Trends in
Accounting 2: 1–174.
Wearing, R. 2005. Cases in Corporate Governance. SAGE Publications: London, UK.
6. Research assistant (RA) and local country expert (CE):
CE: Brian Singleton-Green, ICAEW
RA: Siladitya Mohanti
(Continued)
165
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A25.1—Continued
7. Examples of corporate scandals:
Second Railway Mania
Accounting scandal: Several railway companies deliberately overstated profits to
(1845)
maintain current dividend pay-out ratios. In many cases, deprecation was
understated or missing and, hence, the expenses subtracted from revenues were too
low, giving rise to inflated operating profits.
City Equitable Fire
Accounting scandal: Management hid substantial losses from loans to other firms
Insurance Company
through a series of balance sheet manipulations from the public. Once the post(1922)
World War I investment boom ended, the value of the company’s investments fell,
and the firm had to declare bankruptcy.
Polly Peck (1989)
Accounting scandal: CEO Asil Nadir extracted large amounts of cash for personal
use and hid the transactions through complicated debt structures involving the
subsidiaries of the firm and the overvaluation of (in some cases, non-existing)
assets.
8. Examples of accounting regulation:
Joint Stock Companies
Accounting regulation: Required companies to keep “proper books of account” and
Act (1844)
to balance them annually.
Companies Act
Accounting regulation: The law instituted the explicit requirement to file audited
(1928/1929)
annual balance sheets, and set out basic disclosure requirements.
Cadbury Report
Accounting regulation: The report on the “Financial Aspects of Corporate
(1992)
Governance,” chaired by Adrian Cadbury, set out recommendations on the
arrangement of company boards and accounting systems to mitigate corporate
governance risks. It was by many seen as a response to several high profile
corporate scandals and governance failures in the U.K.
The table provides general information on the time period, data sources, search terms, and secondary literature used
in the data collection. An asterisk (*) indicates a premier (business) newspaper outlet in a country; a dollar sign ($)
indicates that the electronic archive does not offer free access, but needs a subscription; E stands for electronic
archive that is accessible through key word search. The table also lists a few illustrative examples of corporate
scandals and accounting regulations identified in the search.
166
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A25.2
Incidents of Corporate Scandals and Accounting Regulation in the United Kingdom by Decade
Corporate Scandals
Decade
1800
1810
1820
1830
1840
1850
1860
1870
1880
1890
1900
1910
1920
1930
1940
1950
1960
1970
1980
1990
2000
2010
Total
Accounting
0
0
0
0
2
6
4
1
3
10
8
0
3
2
0
0
1
18
8
13
6
7
92
Near
Accounting
0
0
0
2
2
3
1
1
1
5
3
8
2
2
0
0
2
4
10
5
3
0
54
Accounting Regulation
Other
Total
0
1
2
0
7
7
4
3
4
6
1
3
1
2
0
0
0
8
5
5
14
3
76
0
1
2
2
11
16
9
5
8
21
12
11
6
6
0
0
3
30
23
23
23
10
222
Accounting
0
0
0
0
3
2
3
3
1
1
3
1
3
0
2
0
1
2
1
3
4
1
34
Other
0
1
0
2
0
1
0
0
0
0
1
0
0
1
0
1
1
0
1
3
3
1
16
Supranational
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
2
0
3
1
6
Total
0
1
0
2
3
3
3
3
1
1
4
1
3
1
2
1
2
2
4
6
10
3
56
The table reports the number of corporate scandals and accounting regulations by decade and type for the U.K. over
the 1800 to 2015 period (N = 210 years). For the empirical analyses, we classify the corporate scandals that we
identified in the data collection as either “accounting scandal”, “near accounting scandal”, or “other scandal” and the
regulatory actions as either “accounting regulation”, “other regulation”, or “supranational regulation.” See Section 2
of the main text for details. If feasible, we measure corporate scandals in the year they are first covered in the
financial press, and accounting regulation in the year it is enacted.
167
APPENDIX
CORPORATE SCANDALS AND REGULATION
A26.! United States of America
A26.1.! Overview
The early British colonies in North America were structured as joint stock companies and
belonged to Britain’s mercantile empire. The American Revolutionary War (1775-1783) resulted
in the formation of a republic with a federal government that provided its citizens the unalienable
right to “life, liberty, and the pursuit of happiness.” The U.S. Constitution of 1787 united the
nation and created a unified market with no internal tariffs or taxes on interstate commerce. At
the beginning of the 19th century, the U.S. economy was primarily agricultural, and most people
lived on farms. A considerable proportion of the non-farm population was handling goods for
export, and many large-scale businesses were transportation companies. A trend towards a more
industrialized economy started around 1850, particularly in the Northeast where many factories
were built along transportation routes to supply regional and national markets. At the turn of the
century, the United States entered a phase of rapid economic growth that abruptly ended with the
stock market crash in 1929 and the onset of the Great Depression. Emerging victorious from
World War II, the U.S. economy exhibited an extended period of productivity gains until the mid
1970s. During this era of the “baby boomers” prosperity surged as did the demand for suburban
single-family homes. Over the last four decades, the composition of the U.S. economy shifted
away from manufacturing to more technology and service oriented businesses.
While the U.S. Constitution defined the federal responsibilities, it left the regulation of
corporations primarily to the states. Consequently, there was little interference by the federal
government and most regulations during the 19th and early 20th century were put in place on the
state level. A good example was the Blue Sky Laws of 1911, in which the state of Kansas issued
initial investor protection and accounting rules. These regulations spread to other states over
time. With the rising importance of big, multi-state corporations, the federal government took a
more active role in regulation, and in many cases attempted to mitigate monopolistic corporate
behavior. The Sherman Antitrust Act of 1890 is such an example. The federal law prohibited
certain business activities that the government considered anti-competitive. Similarly, early
pushes for the regulation of corporate disclosures at the federal level grew out of a desire to
monitor and prevent monopolistic practices in large corporations engaging in interstate
commerce such as the Standard Oil Company (established by John Rockefeller in 1870). The
168
APPENDIX
CORPORATE SCANDALS AND REGULATION
stock market crash of 1929 paved the way for the Securities and Exchange Act (1933/1934) that
instituted basic disclosure requirements for publicly listed firms to restore investor confidence in
securities markets. It also led to the creation of the U.S. Securities and Exchange Commission
(SEC). The SEC was granted the authority to oversee and regulate securities markets including
the issuance and enforcement of reporting and disclosure rules. The agency delegated the task of
setting generally accepted accounting principles (GAAP) to private organizations, first to the
American Institute of Certified Public Accountants (AICPA) and then, in 1973, to the newly
formed Financial Accounting Standards Board (FASB). The major legislative initiatives with an
impact on financial reporting were the Regulation Fair Disclosure (2000) that mandated
disclosure of material information to all investors at the same point in time, the Sarbanes-Oxley
Act (2002) that strengthened corporate governance and control including the role of the external
auditor, and the Dodd-Frank Act (2010), a comprehensive legislative framework for financial
markets and consumer protection in the aftermath of the financial crisis in 2007/2008.
A26.2.!Data Collection
We start our data collection in 1851 with the first digitized issue of The New York Times
(https://en.wikipedia.org/wiki/The_New_York_Times), one of the leading daily newspapers in
the Unites States. We accessed the archive through Factiva, which allows for key word search.
We screened every article containing the search terms for potential episodes of scandals that met
our definition. We then conducted another search using the company names and time-periods
identified to assess the economic importance of the event. We supplement our search of The New
York Times with key word searches in the electronic archive of the Wall Street Journal
(https://en.wikipedia.org/wiki/The_Wall_Street_Journal), the country’s premier business outlet.
Moreover, we relied on the extensive secondary literature covering corporate scandals and frauds
in the U.S. We cross-checked every scandal identified in the secondary literature with the
respective newspaper sources. We did not systematically review and integrate sources of
ongoing accounting misbehavior like securities class action lawsuit filings or Accounting and
Auditing Enforcement Releases (AAERs) issued by the SEC (e.g., Karpoff et al. 2017). Even
though these events most likely fall under criteria (1) to (3) of our definition (see Table 2 of the
main text), they typically lack the public scrutiny and attention we require for a corporate scandal
to be included in the database. Thus, only a select few of these cases ended up being coded in our
169
APPENDIX
CORPORATE SCANDALS AND REGULATION
search (i.e., those with comprehensive press coverage). Most of the episodes of scandals that we
identified in the early years were related to frauds and embezzlements and only tangentially
involved financial accounting. Only over the last four decades, pure accounting scandals became
more frequent.
We relied on a detailed survey of the secondary literature for regulation. This procedure
allowed us to identify the major federal (and state) laws pertaining to company formation and
accounting regulation. We also surveyed the accounting statements issued by the FASB, a
private, non-profit organization charged by the SEC with setting accounting standards for public
firms. We examined the main standards issued by the FASB since its inception (as well as some
issued by its predecessor organizations), but only included a select few regulations that we
deemed significant. Table A26.1 provides additional details on the data collection procedure.
A26.3.!Data Description
In Figure A26.1 we graphically plot the mentions of “Scandal” and “Regulator” in the
historical archives of The New York Times. The time series covers the years 1851 to 2015. We
used the exact terms in the key word search, regardless whether they appeared on the front page,
in the headlines, or the body of the article. We observe multiple waves in the mentions of scandal
over time, the first in 1870, the second around the turn of the century, the third around 1930, and
then again in the mid 1950s, 1960s, and 1970s. Over the last three decades, the mentions of
“Scandal” substantially increased and exhibited several peaks. The mentions of “Regulator”
hovered around low levels for many years, until they starkly increased beginning in 1970. The
correlation between the two time-series is on the order of 70% for the entire period and after
World War II, but the correlation coefficient is only 25% before 1946.
Table A26.2 reports descriptive statistics on the incidents of corporate scandals and
accounting regulation by decade identified for the United States. The data covers the period 1851
to 2015. We could identify 227 corporate scandals and 43 regulatory acts. While there were early
peaks in corporate scandals around 1880 and 1930 (no pure accounting scandals before 1903),
the numbers started to increase substantially beginning in the 1970s. In the first decade of the
21st century, the frequency of corporate scandals reached an unprecedented high of 78 cases. The
regulatory activity was more evenly distributed over time, but also saw an increase in regulations
over the last 45 years of the sample period.
170
APPENDIX
CORPORATE SCANDALS AND REGULATION
FIGURE A26.1
Media Mentions of the Terms “Scandal” and “Regulator” from 1851 to 2015 in the United States
293..
:;#'<#*
=">?*#+&$
29...
!"#$%&'()&$$"*#+,&'%4634(+&(2.43
./001
4634(+&(4753
./232
493..
4758(+&(2.43
470.(+&(2.43
./0.4
./534
49...
3..
.
463.
468.
460.
466.
467.
47..
474.
472.
471.
475.
473.
478.
470.
476.
477.
2...
2.4.
The figure plots the yearly number of incidents the terms “scandal” and “regulator” are mentioned in the business
press. We plot the results from searching the U.S. newspaper The New York Times over the period 1851 to 2015. We
also indicate the contemporaneous Pearson correlation coefficients between the two time-series over the entire
period as well as over various sub-periods.
171
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A26.1
Overview of Data Collection Procedure in the United States
1. Earliest year of data collection and time period coverage:
Coverage: 1851 to 2015
Start date: September 18, 1851
2. Data sources, time period used for search, and data accessibility:
-! The New York Times (1851 to 2015); online archive through ProQuest Historical Newspapers ($; E)
-! The Wall Street Journal* (1889 to 2015); online archive through ProQuest Historical Newspapers ($; E)
3. Key search terms (main terms only):
Scandal: scandal, fraud, misconduct, embezzlement, theft
Accounting scandal/fraud: accounting scandal, accounting fraud, corporate scandal, corporate fraud, financial
misconduct
Earnings management: earnings management, earnings manipulation, accounting manipulation, creative
accounting
Regulator: regulator, regulation, legislator, legislation, law, decree, order
Accounting regulation: accounting regulation, disclosure regulation, GAAP, generally accepted accounting
principles, accounting rules, bookkeeping regulation, bookkeeping rules
Securities regulation/law: securities regulation, securities law, financial markets oversight, company law
4. Special remarks about data collection:
-! We used the New York Times as our main resource but complement it with the Wall Street Journal for
searches based on secondary sources.
-! After World War II, we applied higher standards in terms of newspaper coverage to assess the materiality of
an episode of scandal that we identified.
5. Secondary literature (main resources):
Ball, R. 2009. Market and political/regulatory perspectives on the recent accounting scandals. Journal of
Accounting Research 47: 277–323.
Banner, S. 1998. Anglo-American Securities Regulation – Cultural and Political Roots, 1690-1860. Cambridge
University Press: Cambridge, UK.
Clikeman, P. 2009. Called to Account: Financial Frauds that Shaped the Accounting Profession. Taylor &
Francis: London, UK.
Karpoff, J., A. Koester, D. Lee, and G. Martin. 2017. Proxies and databases in financial misconduct research.
The Accounting Review, forthcoming.
Komai, A., and G. Richardson. 2011. A brief history of regulations regarding financial markets in the United
States: 1789 to 2009. NBER working paper no. 17443.
Moehrle, S., and J. Reynolds-Moehrle. 2011. Chapter 5: United States. In: Previts, G., P. Walton, and P.
Wolnizer (eds.). A Global History of Accounting, Financial Reporting and Public Policy: Americas.
Emerald Group Publishing: Bingley, UK: 105–144.
Mulford, C., and E. Comiskey. 2011. Creative accounting and accounting scandals in the USA. In: Jones M.
(ed.). Creative Accounting, Fraud and International Accounting Scandals. John Wiley & Sons: West
Sussex, UK: 407–424.
Norton, S. 2011. Bank failures and accounting during the financial crisis of 2008-2009. In: Jones M. (ed.).
Creative Accounting, Fraud and International Accounting Scandals. John Wiley & Sons: West Sussex, UK:
425–452.
Sivakumar, K., and G. Waymire. 2003. Enforceable accounting rules and income measurement by early 20th
century railroads. Journal of Accounting Research 41: 397–432.
Waymire G., and S. Basu. 2007. Accounting is an evolved economic institution. Foundations and Trends in
Accounting 2: 1–174.
Zeff, S. 2005a. The evolution of U.S. GAAP – The political forces behind professional standards (Part 1). CPA
Journal, January: 19–27.
Zeff, S. 2005b. The evolution of U.S. GAAP – The political forces behind professional standards (Part 2). CPA
Journal, February: 19–29.
6. Research assistant (RA) and local country expert (CE):
CE: Professor Greg Waymire, Emory University
RA: Varun Sharma, London Business School
(Continued)
172
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A26.1—Continued
7. Examples of corporate scandals:
International Match
Accounting scandal: Over the years, the Swedish engineer Ivar Kreuger build an
Company
international construction and industrial conglomerate. International Match
(Kreuger crash)
Corporation was the group’s holding company in the U.S. To satisfy investors’
(1932)
demand for dividends, Kreuger developed an elaborate financial scheme that
allowed him to move profits between group companies with different closing dates
for their financial reports. This way, he could pay out dividends even though it later
turned out that those payoffs came almost completely out of contributed capital.
The whole system unravelled shortly after Kreuger’s suicide in 1932.
Bausch & Lomb (1995)
Accounting scandal: The firm was using an aggressive promotion and marketing
campaign to push more products onto distributors than they would usually need
(channel stuffing) thereby increasing the (premature) recognition of revenues. At
the same time, the firm did not properly disclose these practices, effectively
reporting sales growth that was neither real nor sustainable.
WorldCom (2002)
Accounting scandal: The telecom company, over several years, was overstating
assets on the balance sheet and understating expenses in the income statement,
resulting in inflated profit numbers. The main issue was the capitalization of
operating lease expenses incurred by renting other telecom companies’
infrastructure (e.g., last-mile access). Moreover, the company failed to write down
goodwill from numerous past acquisitions that it was carrying on the balance sheet
but clearly was worth less than the amounts reported.
8. Examples of accounting regulation:
Blue Sky Laws
Accounting regulation: Enactment of the first blue sky law in Kansas that served as
(1911)
model for similar regulations in other states. Blue sky laws are state laws regulating
the offering of securities with the goal of protecting investors from fraud. The laws
contain basic disclosure requirements like the obligation to issue a prospectus when
selling new securities.
Securities and Exchange Accounting regulation: The 1933 act was the first major federal legislation
Act
regulating the offering of securities. A major focus was on disclosure in that the law
(1933/1934)
wanted to ensure that investors receive all the material information they need to
assess the potential investment. Issuing firms are required to submit a registration
statement containing information about the securities to be offered, the company,
the business, as well as audited financial statements. The 1934 act established the
SEC as the primary enforcement agency of U.S. securities law.
Sarbanes-Oxley Act
Accounting regulation: The law, by many seen as a reaction to the major corporate
(2002)
scandals at the time, tightened financial reporting requirements and corporate
governance. It included prescriptions regarding the disclosure of financial
transactions, adequate internal control mechanisms over financial reporting, and the
tasks and responsibilities of the external auditor. It also assigned responsibility for
the accuracy and completeness of financial reports to senior executives, and
increases/introduces penalties for “white collar crimes” and corporate fraud.
The table provides general information on the time period, data sources, search terms, and secondary literature used
in the data collection. An asterisk (*) indicates a premier (business) newspaper outlet in a country; a dollar sign ($)
indicates that the electronic archive does not offer free access, but needs a subscription; E stands for electronic
archive that is accessible through key word search. The table also lists a few illustrative examples of corporate
scandals and accounting regulations identified in the search.
173
APPENDIX
CORPORATE SCANDALS AND REGULATION
TABLE A26.2
Incidents of Corporate Scandals and Accounting Regulation in the United States by Decade
Corporate Scandals
Decade
1850
1860
1870
1880
1890
1900
1910
1920
1930
1940
1950
1960
1970
1980
1990
2000
2010
Total
Accounting
0
0
0
0
0
2
1
0
4
0
2
0
8
10
25
39
3
94
Near
Accounting
2
0
5
2
2
2
1
2
1
1
1
1
1
5
5
14
1
46
Accounting Regulation
Other
Total
1
3
2
5
3
2
2
5
5
2
3
7
4
5
10
25
3
87
3
3
7
7
5
6
4
7
10
3
6
8
13
20
40
78
7
227
Accounting
0
0
0
0
1
1
2
0
4
1
2
5
6
3
1
4
0
30
Other
0
1
0
1
1
2
1
0
1
0
0
0
0
0
1
4
1
13
Supranational
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Total
0
1
0
1
2
3
3
0
5
1
2
5
6
3
2
8
1
43
The table reports the number of corporate scandals and accounting regulations by decade and type for the United
States over the 1851 to 2015 period (N = 165 years). For the empirical analyses, we classify the corporate scandals
that we identified in the data collection as either “accounting scandal”, “near accounting scandal”, or “other scandal”
and the regulatory actions as either “accounting regulation”, “other regulation”, or “supranational regulation.” See
Section 2 of the main text for details. If feasible, we measure corporate scandals in the year they are first covered in
the financial press, and accounting regulation in the year it is enacted.
174