Royal Ahold Scandal

Topics: Stock market, Stock, Ahold Pages: 69 (21884 words) Published: December 22, 2011
No. 2005–57 ROYAL AHOLD: A FAILURE OF CORPORATE GOVERNANCE AND AN ACCOUNTING SCANDAL By Abe de Jong, Douglas V. DeJong, Gerard Mertens, Peter Roosenboom March 2005

ISSN 0924-7815

Royal Ahold: A Failure of Corporate Governance and an Accounting Scandal

Abe de Jong* Department of Financial Management Erasmus University Rotterdam Douglas V. DeJong Tippie College of Business University of Iowa Gerard Mertens Department of Financial Management Erasmus University Rotterdam Peter Roosenboom Department of Financial Management Erasmus University Rotterdam

Current Draft: March 11, 2005 Keywords: international economics, financial economics, financial reporting, law and economics, corporate governance, regulation. JEL Classification Numbers: F36, G38, K22, M40 * Corresponding author. Erasmus University Rotterdam, Department of Financial Management, Room F4-32, P.O.Box 1738, 3000 DR Rotterdam, The Netherlands; phone +31-10-4081022. The authors would like to thank Marco Becht, Willem Buijink, Paul Frentrop, Reggy Hooghiemstra, Bruce Johnson, Bill Kinney, Miriam Koning, Mark Penno,Willem Schramade, Roy Suddaby and Bart van Halder for helpful comments and Shan-Twan The for excellent research assistance.

Royal Ahold: A Failure of Corporate Governance and an Accounting Scandal

ABSTRACT Royal Ahold (Koninklijke Ahold NV) was one of the major success stories in the 1990s and is one of the major failures, suffering a complete meltdown, in 2003. We investigate the strategy, accounting transparency and corporate governance of Ahold; elements which jointly drive the firm’s performance over this period of time. In general, the corporate governance, accounting transparency, strategy and firm performance relationships are complex. There is not a fully specified model available to address the inter-relationships, including the endogeneity problem. The econometrics are difficult and constrained not only by the lack of a fully specified theory but also by data availability. Our clinical study overcomes these problems by providing an in-depth analysis of the inter-relationships among corporate governance, accounting transparency and strategy that lead to Ahold’s downfall. We provide insights into these relationships and their complexity that present theory and empirical studies cannot address.


1. Introduction The rise and fall of Royal Ahold (Koninklijke Ahold NV) is an important event in corporate governance and accounting. Headquartered in the Netherlands, Ahold is one of the world’s largest international retail grocery and food service companies. At its peak in 2001, Ahold’s reported sales and profits were €66.6 billion and €1.1 billion and it operated 5,155 stores in 27 countries with nearly a quarter of a million employees. Ahold began as a family firm in 1887 and went public in 1948. Ahold was a family-controlled business under the Heijn family, operating primarily in the Netherlands for over 100 years. In 1989, Ahold under went a transition from a family-controlled to a managementcontrolled firm. Following this transition, Ahold experienced a remarkable period of success. It generated over a 1,000% return for its shareholders and had a market capitalization of €30.6 billion by November 2001. In February 2003, Ahold suffered a complete meltdown. The ensuing period found a firm in complete disarray: a failed strategy, an accounting scandal, the firing of professional management, and litigation filings from all parts of the world. Shareholders lost most of their returns generated since 1989. Ahold shattered the illusion that corporate governance and accounting were U.S. problems; Ahold became “Europe’s Enron” (The Economist, March 1, 2003). It caused Dutch and European policymakers to rethink their approach to corporate governance and accounting policy. In the Netherlands, a committee on corporate governance was installed on March 10,...

References: 31
DiGeorgio, R., 2002
Moeller, S.B., Schlingemann, F.P., Stulz, R.M., 2005
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