Examples such as the Ahold accounting scandal or the bribery practices at Imtech show that company acquisitions can lead to fraud and that this can take companies to the brink of ruin. Esteban Barnhardt discovered that the risk of fraud increases when a company initiates more acquisitions simultaneously. In his graduation research project for the Master of Strategic Innovation Management at the Rijksuniversiteit Groningen Barnhardt also makes recommendations for solutions.
In collaboration with his supervisors Dr Killian McCarthy and Prof Dr Dries Faems of the Faculty Economics and Business Barnhardt studied international acquisition data of 16,257 companies and information on 405 fraud-related court cases.
The greater the number of acquisitions a company is actively involved in at the same time the bigger the chance that the company will have to deal with fraud, research shows. Possibly, initiating various acquisitions cause a heightened complexity and lack of effective supervision within the acquiring company, thus creating the opportunity for fraudulent behaviour.
To curb the chances of fraudulent behaviour it is advisable to strongly integrate the acquired companies into the acquiring company, according to the researchers. If acquired companies keep a separate status and structure after the acquisition, as was for instance the case with Imtech, it seems that local managers have a free rein which is conducive to fraudulent behaviour. Such fraudulent behaviour seems to be less easy when companies are strongly integrated into the acquiring company.
Based on the findings the researchers advocate prudence in setting up ambitious acquisition programmes. Simultaneously acquiring various companies increases the chances of top management losing control, which can have far-reaching consequences for the reputation and continuity of the company concerned.
For more information please contact one of the supervisors of the research project: Prof. Dr.
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