Satyam : India 's Biggest Corporate Scandal

1959 Words Apr 21st, 2015 8 Pages
Executive Summary
Incorporated in 1987, Satyam Computer Services Limited (a foreign private issuer) was India’s fourth largest IT company that operated in 65 countries around the world, including 9 offices in the United States. It had American Depository Shares traded on the New York Stock Exchange during the fraud period (2003-2008) and changed its name to Sify Technologies Limited in October 2007. Now, Satyam has a new senior management team consisting of members formerly associated with Tech Mahindra Ltd and has replaced all board members that were in place during the fraud period. Satyam’s fraud is known as “India’s Enron” because it was India’s biggest corporate scandal. Unlike Enron’s agency problem, Satyam was brought down due to executives “tunneling.” Tunneling is the transfer of assets and profits out of firms for the benefit of those who control them. The company had large cash assets, but promoters still controlled it with a small percent of shares (less than 3%). Also, Satyam attempted to absorb a real-estate company in which they had a majority stake. This was a deadly combination that pointed to tunneling. The Satyam scandal highlights the importance of securities laws and corporate governance in emerging markets.

Background Information
When analyzing Satyam’s competitive environment, the first aspect we considered was rivalry among existing firms. Satyam listed in their financial statements that their main competitors included Bharti Airtel, Tata…

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