Corporate Frauds

Corporate Frauds in Europe

Failures of Rationality and the Perverse Effect of Trust and Reputation in Corporate Frauds: Evidence From the Parmalat Bankruptcy

Paolo Campana, from the University of Oxford, made a contribution to the 2012 Annual Conference of the European Society of Criminology, in the category “Crime and Society,” under the title “Failures of Rationality and the Perverse Effect of Trust and Reputation in Corporate Frauds: Evidence From the Parmalat Bankruptcy”. Here is the abstract: Founded in 1961, the multinational company Parmalat collapsed in 2003 following the discovery of a ?14bn hole in its accounts. It soon became evident that the CEO, chairman and founder, Calisto Tanzi, had been cooked the books for years. Why did an entrepreneur with a track record of success and innovation decide to commit a fraud? Relying on extensive evidence, this paper explores the mechanisms at play on three separate levels: micro (entrepreneur's decision-making), meso (intra-company safeguards) and macro (reputational intermediaries). The paper argues that Tanzi dismissed alternative and arguably more profitable courses of action and decided to enter an unlawful slippery path as the result of individual biases (self-deception, overconfidence and emotions). Then, once the fraud had started, trust and reputation had the unintended consequence of letting it escalate as a result of reputational short-circuits triggered by a series of failures faced by reputational intermediaries (gatekeepers). More generally, this case shows that a Schumpeterian entrepreneur contains within itself the seeds of potential crises.

Resources

See Also

Further Reading

  • “Failures of Rationality and the Perverse Effect of Trust and Reputation in Corporate Frauds: Evidence From the Parmalat Bankruptcy”, by Paolo Campana (Proceedings)

Leave a Comment