Samenvatting

The collapse of the Corporate Commercial Bank in 2014 is the biggest financial fraud case that occurred in Bulgaria since it joined the European Union. The prosecutors’ indictment defines it as a pyramid scheme case. It had a great impact on Bulgarian economy and politics, as its measurable impairment losses are as high as 5% of the GDP and continue to rise.
The focus of the current thesis is to examine corporate governance mechanisms and theories, and their applicability in the banking sector. Hence, the key objective is to answer the following central question: „What are the corporate governance mechanisms that can help prevent corporate fraud from happening again?” In order to do so a mixed research methods’ approach was used to gather the necessary data. This approach includes qualitative and quantitative research.
The Theoretical Framework and Literature Review provides an in-depth research of the theories related to corporate governance mechanisms and practices, corporate trustworthiness, service quality and control, fraud detection, prevention and investigation. This regulatory framework covers a wide range of provisions from the establishment of financial institutions throughout the decision-making process, to insolvency procedures. Thus its application can contribute to minimizing the human factor, the principal-agent conflicts and other related flaws. This would be of substantial importance for stability and predictability.
The Case Study data was collected through the examination of the official indictment, official financial and institutional reports, and a variety of news media sources. These documents revealed poor governance practices within the bank and governmental regulators. Additionally, five interviews were conducted with representatives of some of the largest public companies in Bulgaria to substantiate the analysis and the conclusions.
The Analysis uncovers several main findings. Firstly, fraudulent behaviours and corrupt practices can be reduced through transparency, truthful accounting, independent auditing and corporate control mechanisms. Secondly, the main challenge for governmental regulators appears to be the restoration of confidence. This can only be achieved through institutional transparency, the adoption of tough control measures, the selection of qualified executive officers and adequate remuneration. Lastly, corporate governance mechanisms are only effective in a less fraud-oriented and more transparent environment with governmental supervision.