Study On The Means And Motivation Of Fraud Of The Acquired Party In M&A Recombination

For the past decades,China’s expeditious growth in economy has been shown as an essential factor linked to the world’s development.Therefore,the rivalry among a variety of industries in China rises.During this period,mergers and acquisitions have gradually become a new method that enterprises emulate and pursue,hoping to quickly meet their needs for transformation,upgrading,or development.However,with the continuous expansion of M&A scale and scope,risks related to M&A also emerge,such as financial fraud in order to facilitate M&A,and impairment of goodwill caused by promised performance inflated,etc.The frequent occurrence of financial fraud problems caused by mergers and acquisitions has exposed the loopholes in my country’s capital market environment.This article analyzes the case of Ningbo Dongli Co.,Ltd.’s acquisition of Shenzhen Nianfu Supply Chain Co.,Ltd.,which is deeply involved in financial fraud.This case is a key case of the China Securities Regulatory Commission in 2022 that used innovative means of "fictitious supply chain business" to commit financial fraud.In 2017,Ningbo Dongli suffered continuous losses and entered a bottleneck period in its development.In order to find new business growth points,it ultimately chose to transform through the acquisition of high-quality supply chain service enterprise Nianfu Supply Chain.From July 2014 to March 2018,Nianfu Supply Chain used methods such as inflating export agency service fees and fictitious overseas agency procurement business to achieve high-value M&A and performance commitments.It accumulated inflated revenue of 3.5 billion yuan and inflated profits of over 400 million yuan,with malicious fraud nature and purpose.This paper employs the literature research method and case study method so as to analyze in detail the fraudulent methods and motives generated by the cross-industry M&A between Ningbo Dongli and Nianfu Supply Chain.In terms of means,Nianfu Supply Chain inflated revenue through offshore supply chain business,fabricated accounts receivable and concealed related party relationships to falsify performance and promote Ningbo Dongli’s acquisition.To meet the performance commitment,Nianfu Supply Chain continued to fake.By analyzing the motivation of Nianfu Supply Chain’s fraud,it is further known that: internally,the unequal equity structure of Nianfu’s internal management and the failure to keep up with business development after the acquisition led to the inability to meet the performance commitment requirements.At the same time,in the process of supply chain business,the lack of effective internal control enabled the parent company to cooperate with its Hong Kong subsidiary and grandson company to fake.Externally,the failure of intermediary agencies to perform their duties and the weak penalties of external regulatory agencies jointly led Nianfu Supply Chain to implement financial fraud.Finally,targeted prevention suggestions are put forward to deal with the occurrence of fraud in crossindustry mergers and reorganizations.As a case of financial fraud under the guise of the current popular supply chain business,the way Nianfu Supply Chain was acquired by fraud is novel and typical.Studying it has practical significance and can provide suggestions for similar enterprises involved in supply chain business to detect and prevent financial fraud during mergers and acquisitions.