Monday, November 07, 2011

Invention of the Day: Financial losses masked as acquisition fees.

Large financial losses are usually perceived by the markets as a major systematic problem within a company. At the same time, a large one-time payment is often seen as a legitimate business expense. Here's how Olympus exploited this psychological bias by hiding hundreds of millions of dollars in plain sight:
Nov. 8 (Bloomberg) -- Olympus Corp. said three executives helped conceal decades of losses by paying inflated fees to takeover advisers.

Olympus funneled more than $600 million in fees on the $2 billion Gyrus takeover to offshore funds to cancel impairments that the company had kept off its books.

Large acquisitions rarely work out to the benefit of the acquiring company. I wonder how much of it can be attributed to various losses recognized as a one-time non-systematic expense.

tags: finance, business, problem, solution, psychology

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