Case study of the conglomerate bankruptcy scandal in Taiwan (The Rebar Group)

Abstract

In Taiwan, big companies are basically family-owned enterprises. They begin with a primary industry or a secondary manufacturing industry, and then reach out to a tertiary sector, providing services in various industries. Family businesses use cross-shareholding and affiliation to legally solidify their ownership of listed companies. In addition, they build close relationships with the government or a political party for years, which leads to some unspoken privilege or special benefits. However, diversification and strategic alliances can hide serious financial risks in companies. For example, the Rebar Group's bankruptcy case in 2007 caused severe financial turmoil in Taiwan and drew people's attention to affiliated companies. My research will focus on the context of the Rebar Group's bankruptcy case and the lessons we can learn from the case to avoid any future financial crisis. With the use of only public information from 2001 to 2005, a deep dive fundamental analysis of two main affiliated companies in the group will be conducted. Before the analysis, the Beneish M-Score will be used to see the possibilities of earning manipulation. In addition, there are several financial formulas to evaluate corporate credit risks, including the Altman Z-Score and the Ohlson O-Score. In my research, these models will also be used to see whether the case could have been effectively detected earlier.