The Benefits and Costs of Controlling Shareholders: The Rise and Fall of Parmalat

Research in International Business and Finance, Vol. 19, No. 1, pp 27-52, 2005

Posted: 21 Sep 2011 Last revised: 27 Sep 2011

See all articles by Bonnie Buchanan

Bonnie Buchanan

Surrey Business School, University of Surrey

Tina Yang

University of South Florida - Muma College of Business

Date Written: March 1, 2005

Abstract

When Parmalat Finanziaria SpA filed for bankruptcy protection in late December 2003, it was regarded as the biggest financial collapse in European corporate history and was quickly dubbed 'Europe's Enron'. The collapse of Parmalat provides an ideal opportunity to examine the Italian corporate governance system. Parmalat also exhibits a particular agency problem that has received relatively little attention in the literature, namely the conflicts of interest between a controlling shareholder and minority shareholders. In the instance of Parmalat, the controlling shareholder also happens to be the founder, Chairman and CEO of the company. This paper investigates the incentives facing the controlling shareholders and the opportunistic behavior that resulted. Mismanagement, accounting irregularities and regulatory failure allowed this behavior to continue, and led to the company's bankruptcy.

Keywords: Corporate governance; Parmalat; shareholder; regulatory failure

JEL Classification: F30;G34

Suggested Citation

Buchanan, Bonnie and Yang, Tina, The Benefits and Costs of Controlling Shareholders: The Rise and Fall of Parmalat (March 1, 2005). Research in International Business and Finance, Vol. 19, No. 1, pp 27-52, 2005, Available at SSRN: https://ssrn.com/abstract=1931511

Bonnie Buchanan (Contact Author)

Surrey Business School, University of Surrey ( email )

Guildford
Guildford, Surrey GU2 5XH
United Kingdom

Tina Yang

University of South Florida - Muma College of Business ( email )

140 7th Ave S
St. Petersburg, FL 33701
United States
7278734568 (Phone)

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