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Foreign family business and capital flight. The case for a fraud to fail

Author

Listed:
  • Giovanni Favero

    (Dept. of Management, Università Ca' Foscari Venice)

Abstract
The research here proposed is a micro-analysis of a business ending in bankruptcy in the aftermaths of the first oil shock, concerning the Italian subsidiary of a German wareenamelling group established in the town of Bassano in 1925. Following the budget reports and the interviews with the former entrepreurs, the company flourished until the 1960s, when managerial and entrepreneurial successions emphasized the growing difficulties deriving from growing labour costs. A tentative reorganization of the company was hindered in 1968 by union resistance and political pressures for the preservation of employment levels. In 1975 the board of directors decided to declare bankruptcy as a consequence of the huge budget losses. However, a subsequent inquiry of the Italian tax authority discovered an accounting fraud concerning hidden profits in 1974 and 1975. The fraud disclosure shows how historical conditions could create the convenience for performance understatement not only for fiscal purposes, but also in order to make divestment possible. However, it is also used here as an element to argue that business sources and the story they tell should not be taken at their face value, and that a different reconstruction of the company's path to failure is possible. The literature concerning the missed recognition of opportunities is then mobilised in order to interpret the inconsistencies that emerge from the triangulation of business archives, press columns and interviews with union representatives and politicians. This allows to put back into perspective what results as an obsession of company management with labour costs, concealing the importance of other competitive elements, such as the increasing specialisation of the producers of home appliances. This 'refractive error' may be typical of businesses operating in (presumed) mature industries at international level, where wage differentials offer the opportunity to pursue quite literally exploitation much further.

Suggested Citation

  • Giovanni Favero, 2013. "Foreign family business and capital flight. The case for a fraud to fail," Working Papers 27, Venice School of Management - Department of Management, Università Ca' Foscari Venezia.
    • Handle: RePEc:vnm:wpdman:63
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    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. La Deutsche Vida
      by bbatiz in NEP-HIS blog on 2013-12-20 23:46:51

    More about this item

    Keywords

    Business history; foreign direct investments; family business; accounting fraud; corporate governance;
    All these keywords.

    JEL classification:

    • N84 - Economic History - - Micro-Business History - - - Europe: 1913-
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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