Corporate Scandals in India
Why Corporate Scandals Happen
The economic reasons behind corporate fraud - incentives, weak oversight, information gaps and booms that hide problems - and the fraud triangle.
Corporate scandals repeat across countries and decades.
The fraud triangle
Criminologist Donald Cressey described three conditions:
- Pressure: targets, debts or ambition.
- Opportunity: weak controls.
- Rationalisation: “I’ll fix it later” or “everyone does it”.
Economic factors
- Principal-agent problems: managers act for themselves, not shareholders.
- Information asymmetry: outsiders can’t see inside companies.
- Weak auditors and regulators.
- Booms hide losses; downturns expose them. Warren Buffett said, “Only when the tide goes out do you discover who’s been swimming naked.”
Costs
- Investors and depositors lose money.
- Employees lose jobs.
- Trust in markets falls.
Responses
After scandals, regulations tighten, like SEBI rules or new laws.
This module
We examine major Indian scandals, stating facts as established by regulators and courts, while noting that some cases remain in legal proceedings.
The hidden loss
During a boom, a company hides growing losses with accounting tricks. When the market turns, the hole is exposed.
Thinking scandals are only about bad individuals
Incentives and weak oversight enable them.
Key takeaways
- The fraud triangle involves pressure, opportunity and rationalisation.
- Principal-agent problems and information gaps enable fraud.
- Booms hide problems; downturns expose them.
- Scandals often lead to tighter rules.
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