##plugins.themes.bootstrap3.article.main##

  •   Hoje Jo

  •   Annie Hsu

  •   Rosamaria Llanos-Popolizio

  •   Jorge Vergara-Vega

Abstract

This paper examines the antecedents and consequences of the collapse of Wirecard AG, in June 2020, the “German Enron.” Specifically, we investigate how the Wirecard’s ineffective corporate governance under the German’s financial regulatory system fails to serve their stakeholders, and how its management’s unethical behavior of earnings manipulation contribute to significant financial collapse for the company, and lead to the destruction of shareholders’ value. This paper examines how the internal and external governance and monitoring mechanisms failed to uncover the vast fraud at the German payments group at a much earlier stage. Furthermore, we find evidence consistent with the hypothesis that the continuous pressure of meeting or exceeding consensus on earnings estimates, management’s performance compensation based on the growth of Wirecard’s stock price, and the lack of proper supervision from the board of directors ultimately create the opportunities for management to manipulate earnings without being uncovered for several years. Such course of action has caused significant financial corporate misconduct for Wirecard and led to the destruction of firm value.

Keywords: Corporate governance, earnings manipulation, corporate misconduct, financial scandal, German financial regulatory system, the German Enron, Wirecard

References

Jo, H. & Harjoto, M. (2011). Corporate governance and firm value: the impact of corporate social responsibility, Journal of Business Ethics, 103, 351-383.

Jensen, M. (1993). The modern industrial revolution, exit, and the failure of internal control systems, Journal of Finance 48, 831-880.

Miller, M. (2005). Is American corporate governance fatally flawed? In D. Chew and S. Gillan (eds.), Corporate Governance at the Crossroads: A Book of Readings (Irwin Mcgraw-Hill, Boston, MA).

Dossani, A., & Jo, H. (2010). Corporate governance and the fall of Enron, Review of Business Research, 3, 13-24

Jo, H., Kim, Y., & Park, M. (2007). Underwriter choice and earnings management: Evidence from seasoned equity offerings. Review of Accounting Studies, 12, 23-59.

Jo, H. & Kim, Y. (2007). Disclosure frequency and earnings management. Journal of Financial Economics, 84, 561-590.

Fairless, T., Kowsmann, P., & Davies, P. (2020). How Germany’s SEC dismissed a decade of warnings about Wirecard, The Wall Street Journal. Available: https://www.wsj.com/articles/how-germanys-sec-dismissed-a-decade-of-warnings-about-wirecard-11594907212?st=qtys2415ye0g6gg&reflink=article_email_share.

Healy, P.M (1985). The effect of bonus schemes on accounting decisions. Journal of Accounting and Economics 7, 85–107.

McCrum, D. (2020). Wirecard: the timeline. Financial Times. Available: https://www.ft.com/content/284fb1ad-ddc0-45df-a075-0709b36868db.

Meitner, V. (2020). Wirecard’s thrilla in Manila: the story so far (1), Valuesque. Available: https://valuesque.com/2020/06/20/wirecards-thrilla-in-manila-the-story-so-far-1/.

KPMG AG (2020). KPMG report concerning the independent special investigation.

Davies, Paul J. (2020). How Wirecard went from tech star to bankrupt. Wall Street Journal.

Available:https://www.wsj.com/articles/wirecard-bankruptcy-scandal-missing-$2billion-11593703379.

McCrum, D. (2020). Wirecard made this short seller right, but not rich, Financial Times. Available: https://www.ft.com/content/ecc4f12f-9c3a-412f-92d1-eba810a6fb9b

Bender R. & Davies, Paul. (2020). Wirecard’s Markus Braun is arrested again as scandal embroils Angela Merkel. Wall Street Journal. Available: https://www.wsj.com/articles/german-prosecutors-expand-case-against-former-wirecard-executives-11595432184.

Massoudi, A. & Smith, R. (2020). SoftBank executives set to lose profits from Wirecard trade, Financial Times. Available: https://www.ft.com/content/b8eec9d0-0c85-467d-8cb1-467ad87adce.

McCrum, D., & Palma, S. (2019). Wirecard: inside an accounting scandal, Financial Times. Available: https://www.ft.com/content/d51a012e-1d6f-11e9-b126-46fc3ad87c65.

Posner, Cydney (2016). Should insiders be permitted to pledge their company shares? Cooley Pubco. Available: https://cooleypubco.com/2016/01/31/should-insiders-be-permitted-to-pledge-their-company-shares/.

Storbeck, O., Kinder, T. & Palma, S. (2020). EY failed to check Wirecard bank statements for 3 years. Financial Times. Available: https://www.ft.com/content/a9deb987-df70-4a72-bd41-47ed8942e83b.

Wirecard AG (2019). 2018 Annual Report. Available: https://ir.wirecard.com/download/companies/wirecard/Annual%20Reports/DE0007472060-JA-2018-EQ-E-01.pdf.

Wirecard AG (2019). 2019 Corporate Governance Report and Corporate Governance Statement. Available: https://ir.wirecard.com/download/companies/wirecard/Hauptversammlung/18_EN_Corporate_GovernanceReport.pdf.

Wirecard AG (2019). Half year financial report as of 30 June 2019. Available: https://ir.wirecard.com/download/companies/wirecard/Quarterly%20Reports/DE0007472060-Q2-2019-EQ-E-00.pdf.

Jo, H. & Kim, Y. (2008). Ethics and disclosure: A study of the financial performance of firms in the seasoned equity offering market, Journal of Business Ethics, 80(4), 855-878.

Downloads

Download data is not yet available.

##plugins.themes.bootstrap3.article.details##

How to Cite
Jo, H., Hsu, A., Llanos-Popolizio, R., & Vergara-Vega, J. (2021). Corporate Governance and Financial Fraud of Wirecard. European Journal of Business and Management Research, 6(2), 96-106. https://doi.org/10.24018/ejbmr.2021.6.2.708