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«VOLUM E 1 1, N UM B E R 1 I S SN 2 1 6 8 - 0 6 1 2 F L ASH DR I V E I S SN 1 9 4 1 - 9 5 8 9 ON L I N E T h e In s t it ut e f o r Bu s i n e s s an ...»

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The Second Stage of Growth (September 2012 To 2015) On September 2012, FamilyMart began to cooperate with a giant retailer in Thailand, Central Group, to encourage the company’s growth strategy. In 2013, Thailand’s FamilyMart was renamed Central FamilyMart as a joint venture between Japan’s FamilyMart (48%), Central Group (51%), and others (1%).

The principles of selecting joint venture partners and transferring the Japanese convenience business system overseas were formulated by Japan’s FamilyMart as dynamic capabilities. Eventually, Japan’s FamilyMart found a suitable local partner in Thailand and the transfer of the “convenience store business system” improved from “normal” to “slightly strong” in this stage (See Table 3).

Table 3: Transferring Levels of the “Convenience Store Business System” in the Second Stage of Growth

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The results of this study show that FamilyMart could not reach break-even point in Thailand until 2009 due to financial risks, political instability, and lack of a suitable local partner. The requisite dynamic capabilities were gradually formed through experience, learning, and organizational restructuring. Eventually, in 2012, FamilyMart found a good local partner in Thailand, Central Group, and successfully transferred its expertise and know-how to the Thai market. In conclusion, the formation of dynamic capabilities influenced knowledge transformation. In the case of FamilyMart, the two important dynamic capabilities related to GCBF ♦ Vol. 11 ♦ No. 1 ♦ 2016 ♦ ISSN 1941-9589 ONLINE & ISSN 2168-0612 USB Flash Drive 200 Global Conference on Business and Finance Proceedings ♦ Volume 11 ♦ Number 1 internationalization are: (1) being clear on the local partner selection criteria, and (2) building relationships with these partners. Above all, this paper demonstrated three success factors for the internationalization of convenience stores, which are also demonstrated in the author’s previous study of Taiwan FamilyMart (Author, 2014): (1) Establish joint venture arrangements with a good local partner. (2) Grant local partners majority management and empower them to pursue innovation. (3) Support the technical expertise of local companies by maximizing resources.


Cao, L. (2011) “Dynamic Capabilities in a Turbulent Market Environment: Empirical Evidence from International retailers in China,” Journal of Strategic Marketing, vol. 19(5), p.455-469.

Chung, S. (2009) "Retail internationalization in the Taiwanese market" in M. Mukoyama and S. Chio (eds.), International Development of Retailers, Tyuou Keizai Sya, p.123-154.

Chung, S. (2015), “Localization of FamilyMart, a Japanese Convenience Store, in Taiwan,” Journal of Innovation Management, The Research Institution for Innovation Management, No.12, p.133-155.

J. Dawson, J and M. Mukoyama (2003), Global Strategies in Retailing: Asian and European Experiences, Routledge.

FamilyMart official website (http://www.family.co.jp/).

Frasquet M., J. Dawson, J. and A. Mollá (2013) “Post-entry Internationalisation Activity of Retailers,” Management Decision, vol. 51(7), p.1510-1527.

Teece, D.J., G. Pisano and A. Shuen (1997) “Dynamic Capabilities and Strategic Management,” Strategic Management Journal, vol. 18(7), p.509-533.

Yahagi, T. (2007) The Retail Internationalization Process, Yuhikaku.


This work was supported by the Japan Society for the Promotion of Science (JSPS) KAKENHI under Grant number 26380563.


Sulin Chung is Associate Professor of Marketing and Distribution in the Department of Industrial Engineering and Management at the Graduate School of Decision Science and Technology, Tokyo Institute of Technology, Japan. Dr. Chung’s current research interests include internationalization of retailers and international marketing of Taiwanese/Japanese companies in Asia.

GCBF ♦ Vol. 11 ♦ No. 1 ♦ 2016 ♦ ISSN 1941-9589 ONLINE & ISSN 2168-0612 USB Flash Drive 201 Global Conference on Business and Finance Proceedings ♦ Volume 11 ♦ Number 1

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Corporate malfeasance in the United States has increased significantly since the mid-1990s, resulting in a significant increase in the number of companies restating their previously issued financial statements. The U.S. Congress’ passage of the Sarbanes-Oxley Act of 2002 (SOX) was a direct response to the accounting scandals and an attempt to reform the financial/business reporting process. This paper provides an overview of corporate accounting malfeasance, the state of corporate accounting malfeasance, reasons for its occurrence, comprehensive listings of the types of corporate accounting malfeasance activities, and its legislative results. The paper also theorizes that not only is corporate accounting malfeasance is here to stay, but it is an inherent part of the U.S. and global financial system, regardless of the policies implemented by the Securities and Exchange Commission (SEC), other regulatory bodies, or leading institutions of the accounting profession.


Corporate accounting malfeasance is defined as the use of false or misleading accounting information, or omission of these entries, in the financial reporting process (announcements, filings, etc.) that later requires a restatement. This approach, which considers restatements to include accounting errors, accounting misstatements, and/or any other accounting irregularity, is similar to the approach utilized by the United States General Accounting Office (GAO) in their restatement study (GAO, 2002). While the passage of SOX in 2002, the formation of the Enhanced Business Reporting Consortium (EBRC) in 2005, and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 are the most recent attempts to mitigate corporate malfeasance and empower the users of publicly reported information of companies, one important question remains: will these initiatives help to curb the volume and magnitude of corporate malfeasance? Section 2 provides an overview of malfeasance activity in the United States since the early 1990s, while section 3 provides some commonly cited reasons for malfeasance activities. Section 4 provides a comprehensive listing of the types of corporate malfeasance activities that result in restatements. Section 5 presents the consequences of corporate accounting malfeasance activities, and section 6 discusses the conclusions in this paper and areas for future research.


In the United States, the number companies that file restated financials, as well as the magnitude of the restatement amount in dollars, has significantly and steadily increased since the mid-1990s up until approximately 2006, as measured by the sheer number of restatements filed with the SEC as well as the number of restatements announced publicly. Recent evidence shows a different trend, i.e., that the number of restatements has leveled off from 2007 to 2012. Files (2012, Table 2) documents that the number of publicly announced restatements increased steadily each year, from 33 in 1997 to 407 in 2005, which is a 1,100% increase over an eight year period. The U.S. Government Accountability Office (GAO)’s 2002 study (GAO, (2002) also documented a similar increase in announced corporate restatements, with 92 announced restatements in 1997 and the 225 restatements in 2001, which is a 245% increase over a four GCBF ♦ Vol. 11 ♦ No. 1 ♦ 2016 ♦ ISSN 1941-9589 ONLINE & ISSN 2168-0612 USB Flash Drive 202 Global Conference on Business and Finance Proceedings ♦ Volume 11 ♦ Number 1 year period. Similarly, a Huron Consulting Study in 2003 found that the number of corporate restatements filed in 1997 was 116, while the number filed in 2002 was 330, which is a 285% increase. Over the mids until about 2006, the number of companies that are publicly registered with the SEC decreased, which suggests that restatements were more frequent within a set number of firms: The GAO study in 2002 noted that the average number of companies listed on New York Stock Exchange (NYSE), NASDAQ, and American Stock Exchange (AMEX) decreased annually from 9,275 in 1997 to 7,446 in 2002. The Huron study in 2003 also noted that over the period from 1997 to 2001, the number of public registrants decreased by 14%, while the number of restatements rose by 53%. The CPA Journal in 2003 further reiterated that the total number of registered companies decreased from over 10,500 in 1999 to around 9,000 in 2002, including all U.S. publicly traded companies. Although some of the decrease can be attributed to company delistings and bankruptcies related to corporate malfeasance, some of this trend is driven by a number of public companies that have chosen to become private (Grant Thornton, 2003). The results of these studies, and the sentiments expressed in a 1998 speech by Arthur Levitt of the SEC, demonstrate that the increase in corporate malfeasance existed even prior to the occurrence of the subsequent accounting scandals at Enron and WorldCom in late 2001.

Recent evidence shows a different trend, i.e., that the number of restatements has leveled off from 2007 to

2012. For example Scholz (2014, Figure 1) reports that the number of restatements announced peaked at 1,784 in 2006, shortly after the implementation of SOX’s 404 internal control reporting requirements. After that, the number of restatements has declined to about 738 in 2012, which is a decrease of 141%. Given that the effect of SOX in 2002 on corporate malfeasance activity has been both mixed and inconclusive (taking a minimum of five years to have an effect on the declining number of restatements beginning in 2007), this prompts the following questions: What are the causes of corporate malfeasance activity? Since it is likely that legislation, such as SOX 2002, may have no effect on the incidence of corporate malfeasance, restatements may be a permanent fixture in companies traded in the U.S. stock market.


Common reasons for corporate malfeasance include the following:

Meeting Earnings Expectations: A company’s failure to meet earnings expectations can have a significant negative effect on the company’s stock price, which can lead to lower profits, lower executive bonuses, and underwater stock options.

Income Smoothing: Volatile and erratic earnings patterns are considered to indicate high risk, which can potentially increase the required rate of return that investors demand from companies and can potentially lower the company’s stock price. Since volatile earnings are considered undesirable, managers of companies may have incentives to engage in earnings management tactics to smooth revenues and profits, thereby showing continuous company improvement.

Myopic View: Many investors and managers view the short term as the critical time frame without regard to the long term, which may lead managers to engage in malfeasance behavior. Also, since there is the possibility that malfeasance activity will not be detected, some managers may have the mindset that, “I can get away with it!”.

Unclear or Ambiguous Accounting Rules: Many individuals consider accounting rules to be vague, nonuniform, ad subjective (i.e. the definition of “materiality”), which may lead some managers to engage in manipulation of accounting reporting. Additionally, some accounting reporting requires individuals to make internal assumptions, which may be subjective or unreasonable.

GCBF ♦ Vol. 11 ♦ No. 1 ♦ 2016 ♦ ISSN 1941-9589 ONLINE & ISSN 2168-0612 USB Flash Drive 203 Global Conference on Business and Finance Proceedings ♦ Volume 11 ♦ Number 1 Difficulty of Assessing Accountability: Assessing whether an individual’s actions are intentional versus unintentional, or fraudulent versus non-fraudulent, is a difficult and sometime impossible task. As a result, only in very extreme cases like Enron or WorldCom is the evaluation of such actions clear cut. In the majority of cases, criminal and/or civil penalties are difficult to enforce. In general, the penalties of malfeasance are less than the overall cost, which presents a problem to discourage such behavior in financial reporting.

Lack of Internal Ethical Environment: Malfeasance activity is human in nature and may be caused by several things, such as the stresses of management to meet goals to the lack of personal ethical behavior.

Additionally, internal ethical guidelines may be non-existent or not reinforced by management, which adds to the problem.


Revenue Fictitious Revenue: Revenue created through fictitious sales transactions, or revenue created through cooperation/collusion with another company to increase both companies’ financial profile.

Round-tripping; sale of contract from company A to company B, and then from company B back to company A (there is at least one “round-trip”, and there can be more) to increase revenues for each company.

Back-to-back; sale of assets from company A to company B at a gain, and then from company B back to company A at a gain, to increase the income for each company. Round tripping is a form of “back-to-back” but usually with no gain.

Fraudulent sales: Revenue created from fictitious sales transactions with or without sales’ orders and/or shipping documents (customer names can be either legitimate or fictitious).

Revenue Timing – A valid sales transaction recognized as complete in a different accounting period than when the actual transaction was completed. This overstates revenue in one period and understates revenue in another.

Premature revenue recognition: recognizing revenue on a valid sales transaction before the sales transaction is completed.

Backdating sales or software invoices/contracts: a form of premature revenue recognition in which the date for a completed sale or software contract transaction is changed to an earlier accounting period than when the actual transaction was completed.

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