The Causes For Parmalat Scandale Finance Essay

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The Parmalat scandal of January 2004 had caused chaos around the world. Not only did the empire collapse and the CEO Calisto Tanzi had been jailed, but several major players of international finance came under scrutiny. The securities exchange commission considers the Parmalat scandal as one of the biggest and extremely audacious associated financial trickery or deception in the record. The scandal followed the Enron and WorldCom scams which offered a good opportunity to juxtapose the collapse on both sides of the territory. Often dubbed as “Europe’s Enron, theParmalat scandal had created a benchmark for the most eminent problem associated with the continental European governance, where a controlling shareholder exploits the company instead of managing it. The governor of Parmalat had a hint of deficient, whereas Enron was well-structured. Ironically, Parmalat was enjoying the benefits of a good investment grade credit rating which helped them to raise money from the investors. This highlights the loophole which was persistent in the capital markets because it was unable to take the governance flaws of the company into consideration. On the other hand it can be said that the markets depreciated the apprehend speculative and have boosted too much on the auditors. As in all financial collapses, our attention is turned towards the gatekeepers who are responsible for such mayhems. The two of the biggest auditing firms, Grant Thornton International and Deloitte Touche Tohmatsu were unable to detect the frauds. The international banks which top certainly has also alleged regarding the Parmalat executives in developing the perplex transactions which is required to keep the transparent picture of the company in the dark. Professor John Coffee indicated with reference to the Enron scandal, out that the Parmalat scandal is up till now one more example of the allied administration inadequacy of undaunted auditors.


The most distinctive feature of the company was their recurring high levels of cash and debt. Its policy of disclosure was also pronounced by the indifferent and arrogant type of approach by the management towards its analysts and investors. Nevertheless, Parmalat was not considered a “faith stock”. In October 2002, the association made a bond copy of 150 million and immediately after the month another copy value Euros 200 million. These issues alerted the market as Morgan Stanley Ltd. Merely as book runners. The arrogance of management of Parmalat was a regular highlight for numerous reports. A Merrill Lynch report analyst address that the key issue which reversed everyone’s attention is why the group continues to approach the market for proportionately small, yet often quite circuitous debt issues, even after its cash pile persist to rise. In March 2003, Assogestioni, an Italian asset management association wrote a letter to Parmalat condemning the lack of transparency of the group. Mr. Tanzi organized a meeting in Milan the very next month announcing that the group CFO, Mr. The tone had resigned for their new CFO Mr. Ferraris. This announcement made a positive impact on the markets and the stock prices soared.

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