Royal Ahold Scandal

21870 Words Dec 9th, 2011 88 Pages
No. 2005–57 ROYAL AHOLD: A FAILURE OF CORPORATE GOVERNANCE AND AN ACCOUNTING SCANDAL By Abe de Jong, Douglas V. DeJong, Gerard Mertens, Peter Roosenboom March 2005

ISSN 0924-7815

Royal Ahold: A Failure of Corporate Governance and an Accounting Scandal

Abe de Jong* Department of Financial Management Erasmus University Rotterdam a.jong@fbk.eur.nl Douglas V. DeJong Tippie College of Business University of Iowa douglas-dejong@uiowa.edu Gerard Mertens Department of Financial Management Erasmus University Rotterdam g.mertens@fbk.eur.nl Peter Roosenboom Department of Financial Management Erasmus University Rotterdam proosenboom@fbk.eur.nl

Current Draft: March 11, 2005 Keywords: international economics, financial economics, financial
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or working on foreign companies listed in the U.S. (Wall Street Journal, March 5, 2003). We investigate the strategy, accounting transparency and corporate governance of Ahold; these elements jointly drive the firm’s performance over the past decade. The corporate governance, accounting transparency, strategy and firm performance relationships are complex. There is not a fully specified model available to address the inter-relationships, including the endogeneity problem. The econometrics are difficult and constrained not only by the lack of a fully specified theory but also by data availability. Our clinical study overcomes these problems by providing an in-depth analysis of the inter-relationships among corporate governance, accounting transparency and strategy that lead to Ahold’s downfall. We provide insights into these relationships and their complexity that present theory and empirical studies cannot address.

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We begin by analyzing Ahold’s growth strategy through acquisitions and its consequences. Moeller, Schlingemann and Stulz (2005) describe mergers and acquisitions and their consequences during the 1980 to 2001 period and find a clustering of a small number of firms with large losses in the 1998-2001 period. The profile
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