This paper examines the Parmalat case, with special focus on the financial reporting
and corporate governance issues which have caused the collapse. It describes the
ownership and control structure at Parmalat, lending particular attention to the role of
the Tanzi family as the ultimate controlling shareholder. The roles of the board of statutory
auditors, the auditing firm, and the board of directors have also been examined to analyze
the failure of these gatekeepers. The paper also investigates the role of the demand side
information agents with a particular focus on the sell-side analysts. Using company data
publicly available at that time, it examines to what extent a financial analyst could have
been suspicious of Parmalat's reported economic and financial results.
After acknowledging that billions of euros were missing from its accounts, the Parmalat
group entered bankruptcy protection in December 2003. Its collapse led to a profound
questioning of the soundness of financial reporting standards, as well as of Italian corporate
governance system.
This paper aims to examine the key financial reporting and corporate governance issues
in the Parmalat case. In particular, the paper will attempt to give an answer to some questions
such as was it only due to a failure of the 'gatekeepers'? Was it a financial reporting failure
only, or demand-side information agents such as financial analysts were at fault too? Could
or should a sophisticated external analyst have been suspicious of Parmalat's reported
economic and financial results?
An analysis of the ownership and control structure of the Parmalat group shows a complex group
of companies controlled by a strong blockholder (the Tanzi family), through a pyramidal device.
Parmalat Finanziaria was first listed at the Milan stock exchange market in 1990. Its
major shareholders were represented by Coloniale S.p.A. company, which controlled 50.02%
of the company’s voting share capital and two institutional investors. |
