Due Diligence Process Research Articles

Loan application due diligence and financing small firms in Africa

ABSTRACT Banks gauge and verify business potential when processing small business loan applications by conducting due diligence on the firm. Although research has examined the factors that influence small business financing, little attention has been given to understanding the due diligence process that informs credit decision making. We address this gap using signal theory to analyze and develop insights from 24 qualitative interviews. Our study identified 11 key hard and soft signals loan officers use to access small business credit risk during due diligence. The key signals include key person risk, change in leadership risk, articulation of company value, adaptation to change, separating business and personal finances, personal reputation, transparency and willingness to share information, data accuracy and completeness, regular account operation, faulty budget and turnover assumptions, and legitimacy of collateral. The implications for small and medium-sized enterprises finance theory and practice are discussed.

In Search of Effective Corporate Grievance Mechanisms: Can Mandatory Due Diligence Laws be a Progressive Force?

Abstract Mandatory human rights due diligence (mHRDD) laws are currently being proposed and/or implemented in countries around the world. Increasingly, these laws place obligations on corporations to establish or participate in corporate grievance mechanisms (CGMs). CGMs have the potential to ensure that rightsholders are empowered to hold corporations accountable for their human rights performance. But our limited knowledge of how CGMs operate indicates that many are not producing results that are valuable for workers and communities. CGM provisions in mHRDD laws in Germany and Norway, and draft laws produced in the European Union and Brazil are rudimentary and unlikely to produce better-performing CGMs. Analysis of Norwegian mHRDD corporate reporting identifies that many corporations fail to understand the basic elements of an effective CGM. The article therefore argues that requirements for CGMs in mHRDD laws will only be a progressive move if such laws also demand disclosure of information that empowers national authorities, as well as civil society actors and researchers, to scrutinize CGMs to ensure they are effective. Disclosure requirements must speak to three issues: (1) how accessible CGMs are, (2) the way complaints are handled, and (3) the remedies provided to rightsholders. If, as a result of scrutiny of this data, mHRDD laws can produce well-functioning CGMs, this could lead to rightsholder concerns becoming more central to due diligence processes, potentially addressing cosmetic compliance with due diligence obligations.

PENERAPAN METODE PROFILE MATCHING PADA SISTEM PENDUKUNG KEPUTUSAN KELAYAKAN PASIEN UNTUK SUNTIK VAKSIN COVID-19 BERBASIS WEB

The handling of the COVID-19 pandemic is not only carried out in terms of implementing health protocols but also interventions with vaccinations as part of efforts to prevent and control COVID-19. In implementing the current vaccine, there are still many errors in administering vaccines to people who are not eligible or should not be vaccinated, this is due to the ignorance of the people who will receive the vaccine regarding the criteria that need to be considered before receiving the COVID-19 vaccine. So that this ignorance has resulted in victims, where vaccine recipients have fainted, some have even resulted in death. The purpose of this study is to apply the profile matching method to a decision support system for patient eligibility to inject the Covid-19 vaccine. In this study the system was built using a web-based programming language, and using MySQL to accommodate data. As for the process of evaluating the eligibility of patients given vaccine injections using the profile-matching method. The results of this study can help simplify and speed up the due diligence process to determine the administration of the COVID-19 vaccine injection to patients/the public, and can make it easier for the public to access information regarding their eligibility to be given the Covid-19 vaccine, as well as provide a sense of security in receiving the Covid vaccine -19.

Prioritisation under Value Chain Due Diligence

Abstract This article analyses the mechanisms of prioritisation and hierarchisation of risk contained under influential soft law frameworks on value chain due diligence. It identifies the main stages of the due diligence process where prioritisation may be required and clarifies the criteria that may be used by corporations for prioritisation decisions. The article contributes to the development of the literature concerning prioritisation mechanisms under value chain due diligence norms, highlighting, from a compliance perspective, how corporations are expected to prioritise both their evaluations to identify and assess adverse impacts as well as their actions to address specific impacts identified and assessed. In doing so, it showcases the challenges present when comparing the significance of adverse impacts pertaining to different policy fields and their implications in a prioritisation context. It then compares the solutions found in these soft law frameworks concerning prioritisation to the ones contained in European laws and legislative proposals on the subject. The analysis reveals the different approaches used by legislators and reflects on their repercussions for prioritisation mechanisms, suggesting the reinforcement and clarification of prioritisation requirements in accordance with international frameworks of reference.

«БЕЗПЕЧНА ГАВАНЬ» У ПРОЄКТІ ДИРЕКТИВИ ЄВРОПЕЙСЬКОГО СОЮЗУ ПРО НАЛЕЖНУ ОБАЧНІСТЬ ЩОДО КОРПОРАТИВНОЇ СТАЛОСТІ

Over the last decade, the mandatory legislation that requires large companies to conduct due diligence for the social, environmental, and ethical risks within their economic activities and to manage those risks efficiently has been rapidly expanding across Europe. On 23 February 2022 the European Commission unveiled a proposal for a Directive on corporate sustainability due diligence. Following numerous amendments adopted by the European Parliament on 1 June 2023, the proposal now enters negotiations with the EU Council and member states for further refinement. The proposal introduces mandatory human rights and environmental due diligence (mHREDD) which establishes provisions for corporate liability when companies meeting the employee number and turnover criteria specified in the proposal fail to adhere to due diligence obligations, causing otherwise avoidable harm. The adoption of mHREDD transforms the prevention of harmful impacts on human rights and the environment from a voluntary practice of companies into a normative standard of their conduct. Therefore, compliance with the Directive's requirements will become part of a company's compliance as an internal process aimed at ensuring adherence to existing norms and rules. A large proportion of companies targeted by the proposal, while appearing cooperative, seek to weaken the future rules through the corporate lobbying. Among the tactics used to undermine the law is lobbying the so-called “safe harbour” exemption. With a “safe harbour” exemption, the legislature sets out criteria that, if met, could exclude liability and the corresponding ability of claimants to bring action. In the context of the proposal of the Directive “safe harbour” means that a company shall be released from all legal actions upon proof that it had carried out a legally valid due diligence assessment. Safe harbour exemption is contrasted with the use of due diligence as a procedural defence, which the defendant company can plead and seek to prove in court. The proposal’s implications are important for Ukraine considering its status as a candidate country for EU membership. Ukrainian companies, unlike those in the EU countries, lack experience of operating within the framework of corporate social responsibility and non-financial reporting to build upon, and the culture of corporate sustainability is in its nascence. A “safe harbour” approach, under which when the company has seemingly complied with the due diligence process (which might be a mere “tick-box exercise”), it will not be held liable for the harmful effects of its activities, will have devastating impact for the development of corporate sustainability tradition in Ukraine.

Corporate Sustainability Due Diligence Proposal and the 2024 European Parliament Elections

Corporate Sustainability Due Diligence is a current topic on Corporate Responsibility and the protection of human rights and the environment. Recently, the European Commission proposed a directive on this topic and divided opinions mainly regarding the sustainable governance part. Some Member States of the bloc have already adopted rules that embrace the mandatory due diligence process; the proposed directive does not come to eliminate such instruments, but to refine, improve and standardize them. The directive proposal is the first and only of its kind in Europe and with the elections of the European Parliament in the spring of 2024, its discussion and approval becomes urgent.

Role of Due Diligence in Combating Money Laundering in Lens of ESG: A Concept

This study focuses on the implementation of Customer Due Diligence (CDD) requirements under Section 16 of the Anti-Money Laundering Act (AMLA) in Reporting Institutions (RIs). While RIs have established policies and procedures to comply with AMLA and mitigate risks associated with money laundering, there needs to be more emphasis on gathering information to address Environmental, Social, and Governance (ESG) Factors. ESG concerns have become increasingly important in the financial sector, but many institutions need help integrating ESG considerations into their due diligence processes. This study explores the incorporation of ESG due diligence within CDD practices, as it is crucial for long-term value creation, investor returns, and mitigating ESG risks that might be exposed to money laundering. This research aims to identify and propose practical strategies for integrating ESG factors into the customer evaluation process of RIs OR investigate factors that influence the role of due diligence in combating money laundering through the lens of ESG. This paper examines factors that influence the function of due diligence in tackling money laundering through the lens of ESG.

Role of due diligence in business takeover

Motivation: The topic of the article is of paramount importance in today’s ever-evolving business landscape. As companies strive to expand their operations and stay ahead of the competition, mergers and acquisitions have become a popular strategy. However, the risks and complexities associated with these transactions cannot be overlooked. Understanding the role of due diligence is essential for any organization considering a business takeover. It serves as a powerful tool to uncover potential risks, assess the viability of the transaction, and make well-informed decisions. By conducting a thorough due diligence process, companies can identify financial discrepancies, legal liabilities, operational inefficiencies, and hidden risks that may impact the success of the transaction.Aim: The goal of the research was to analyze to what extent is the resulting value of a business is affected by improperly performed due diligence. The method used for data collection was in-debt literature research based on the Web of Science database. Subsequent content analysis was used to identify the 10 most common errors that can occur during the process of due diligence. The following research used the data obtained from answering the first research question with. Ishikawa fishbone diagram was used as a specific method of causal analysis.Results: The main findings include the identification of the most common errors occurring during the performance of due diligence, such as wrong financial analysis, incomplete financial accounts, Incomplete accounting statements, or adjusting entries for receivables. The main causes include excessive work pressure on auditors, past due receivables, poor supplier vetting, or failure to document the application of prices. The research is beneficial for auditors or audited companies so that they could avoid such errors. However, there are also several limitations as it is very time and cost-consuming to deal with due diligence on a company-by-company basis. Also, the application of Ishikawa fishbone diagram and brainstorming prior to diagram depends on the number of experts involve. Another limitation is that the research results applied under current accounting legislation only, and there are different laws and regulations in different countries.

Application of AI Technology in Mergers & Acquisitions and Its Regulation

Applying Artificial Intelligence (AI) brings more possibilities to the Mergers and Acquisitions (M&A) process. However, with the high development of AI, its safety and ethical consequences are gradually emerging. This paper adopts the case analysis method and uses AI's specific application in the due diligence process as an example to analyze the legal risks of its program testing environment, data extraction security, and error tolerance rate. Also, this paper will use contrastive analysis and documentary analysis to explore the legal gaps and prospects of AI in M&A by taking the EU's AI Ethical guidelines, the AI Act, and Guidance for Regulation of Artificial Intelligence Applications from the US as examples, analyzing the regulatory directions and regulations for M&A.

Practical Considerations for the Implementation and Monitoring of Risk Minimisation Measures for High-Risk Teratogenic Medicines.

There is considerable societal interest in making medicines more affordable. A critical factor often inadequately considered early in the process of adding drugs to a company's product portfolio is that some products may require additional monitoring and complex, demanding and expensive additional risk minimisation measures (aRMMs). These aRMMs may have a sizeable impact on a company's commitment to that medicinal product throughout the product's entire life cycle. The teratogenic phthalimides were selected as an example of medicines that are recently being genericised and require a substantial commitment in terms of additional monitoring and aRMMs, most notably in the form of pregnancy prevention programmes (PPPs) with controlled distribution systems (CDSs). Implementing PPPs with CDSs is complex and demanding and encompasses all routine activities, aRMMs, local/regional Health Authority (HA) requirements, and commercialisation strategies. Considerations have been summarised that can support decision-making during due diligence processes, implementation and monitoring. Proactive, effective pharmacovigilance requires innovative, sustainable and flexible solutions to maintain high standards across the board. In particular, generic marketing authorisation holders operate with limited resources and may benefit appreciably from the following proposed suggestions and solutions such as early planning and preparation, knowledge-sharing, utilisation of new technologies and implementation of measures beyond HA-mandated requirements.

Making it into a successful series A funding: An analysis of Crunchbase and LinkedIn data

Startups are a key force driving economic development, and the success of these high-risk ventures can bring huge profits to venture capital firms. The ability to predict the success of startups is a major advantage for investors to outperform their competitors. In this study, we explore the potential of using publicly available LinkedIn profiles as an alternative and complementary data source to Crunchbase for predicting startup success. We provide a comprehensive review of the existing literature on the factors that influence startup success to create a large set of features for predictive modeling. We train two models for predicting startup success employing light gradient boosting that use LinkedIn data as a standalone and as a complementary data source, and compare them to baseline models based on Crunchbase data. We show that using LinkedIn as a complementary data source yields the best result with a mean area under the curve (AUC) value of 84%. We also provide a thorough analysis of what types of information contribute most to modeling startup success using the Shapley value method. Our models and analysis can be used to develop a decision support system to facilitate startup screening and the due diligence process for venture capital firms.

Managing real estate risk with environmental due diligence : Transaction strategies for environmentally impacted properties

Transacting on environmentally impacted properties provides a unique investment opportunity in the real estate market. Environmental risks need to be evaluated and quantified to take advantage of investment opportunities and manage liabilities. This paper provides an overview of the environmental due diligence process, outlines strategies for transacting environmentally impacted properties, and discusses the risks associated with various due diligence approaches and types of contaminated properties.

Judge Juan Manuel Padilla Garcia, ChatGPT, and a controversial medicolegal milestone

Chat Generative Pre-Trained Transformer (ChatGPT) has revolutionized how we perceive artificial intelligence (AI).: Judge Juan Manuel Padilla Garcia created history by mentioning its use while passing judgment about an autistic child and payment for his medical treatment by his insurance company. The use of AI is not new and is helping the judiciary system in many ways. However, this judgment given on January 30, 2023, has ignited controversy among Judge Garcia’s peers and the global community (a Google search produced more than 70 million hits on February 5, 2023). EU has established guidelines that are to be followed before calling any AI tool trustworthy. This requires stringent compliance with the verification and due diligence process. In this instance, ChatGPT was used within 2 months of its launch, even when it has been shown to give incomplete, incorrect, and misleading answers in many instances. Hasty adaption of unproven technology, however good it may be, should not be our path. This might fuel the misguided fear amongst people about robots taking over from human judges.

Ruggie’s Double Movement: Assembling the Private and the Public Through Human Rights Due Diligence

ABSTRACT Human rights due diligence (HRDD) is spreading fast as national laws mandating it multiply across the world. It appears that the due diligence process is about to shape the way we regulate the environmental and human rights impacts resulting from economic activities for years to come. While much of the existing scholarship on the topic is focused on HRDD's content and its concrete implications for businesses, this paper takes a step back to investigate its foundations. In particular, it outlines the core intellectual assumptions behind the approach of John G. Ruggie, the former UN Secretary-General's Special Representative for Business and Human Rights, and his embrace of HRDD. The paper suggests that Ruggie's turn to HRDD is grounded in a commitment to a double movement, comprising both the privatisation of the transnational governance of human rights through the empowerment of corporations as governance entities and the publicisation of corporate governance through the introduction of participatory spaces, transparency requirements, and external accountability processes. I argue that the tension between privatisation and publicisation is at the heart of the HRDD process and reflective of Ruggie's ambition to reassemble the private and the public into a new governance approach fitted to economic globalisation.

Due Diligence - An Approach to Mitigating Risk In Relationships With Third Parties

The due diligence process, adopted previously to the relationship with third parties, is an inherent activity to integrity programmes. However, its effectiveness can be questionable, especially to mitigate the risk in third parties relationships and in the potential to cause financial and reputational damage to an organisation. Therefore, this article aims to propose an integrity risk classification with third parties, in order to allow companies to adopt adequate monitoring actions for those most exposed to possible irregularities during this relationship. Firstly, a literature review will be presented, associated with the regulatory framework, in order to show that the adoption of due diligence has become a common practice in compliance programmes, not associated with the results. In the second section, the research proposes to explore third- party integrity assessments which, for the most of it, can be due diligence questionnaires application and performing public data mining (background checks) to classify the integrity risk. In the end, based on a case study, the third section will present a quantitative approach to risk classification, according to the exposure level integrity risk to the company, the capacity monitoring and does not represent an excessive monitoring cost. The article will adopt the deductive method, in order to suggest new hypotheses. It is expected, with the methodology adopted and the results obtained, to contribute to scientific research, the compliance environment, corporate governance and risk management, as corporate mechanisms for the prevention and detection of fraud with third parties.

ТРАНСКОРДОННІ ЗЛИТТЯ І ПОГЛИНАННЯ В УМОВАХ СУЧАСНИХ ВИКЛИКІВ

This paper is devoted to the study of cross-border mergers and acquisitions in an unstable and turbulent environment, as well as the impact of key global challenges on them. The relevance of the chosen topic is confirmed by the fact that the global economy has experienced a series of shocks in recent years, which have significantly affected the prospects for its development and caused many obstacles for international investment. Cross-border mergers and acquisitions are particularly vulnerable to such challenges and disruptions, as they involve complex negotiations and transactions that are subject to a wide range of economic and political factors. Therefore, it is important to understand the impact of modern challenges on cross-border mergers and acquisitions in order to develop effective strategies for managing risk and maximizing value. This paper aims to provide insights into the complex and dynamic nature of cross-border mergers and acquisitions in the context of modern challenges. The article analyses the main trends of the cross-border mergers and acquisitions market, the dynamics of the number and value of mergers and acquisitions deals over the past three decades, and identifies changes in the market structure. The COVID-19 pandemic has resulted in economic uncertainties and disruptions to market conditions and international business models. The paper identifies significant changes in the due diligence process and in how deals are structured during and after the COVID-19 pandemic. The Russian invasion of Ukraine has dealt another significant blow to cross-border mergers and acquisitions. The article characterizes the impact of Russian aggression against Ukraine on the global and Ukrainian crossborder mergers and acquisitions market. The war has increased inflationary pressures globally. The paper examines the effects of high inflation on cross-border mergers and acquisitions deals and the valuations of target companies. Central banks react to high inflation by raising interest rates, and the negative and positive impacts of high interest rates on cross-border mergers and acquisitions are analysed.

Are Banks Responsible for Animal Welfare and Climate Disruption? A Critical Review of Australian Banks’ Due Diligence Policies for Agribusiness Lending

AbstractThis article argues that banks should adopt animal welfare policies in the light of the growing acceptance of the need for ‘responsible banking’, which incorporates environmental, social, and governance analysis into credit risk and due diligence processes. The responsibility of banks for animal welfare is underscored by the drive towards greater investment in animal agribusiness, and the vicious cycle through which animal agribusiness can both contribute to, and be impacted by, climate disruption. The article evaluates, through a desktop review, how leading Australian retail banks and agribusiness lenders are addressing animal welfare and climate disruption in animal agribusiness lending. We find that although most banks have made a commitment to animal welfare and climate policies, these often amount to little more than greenwashing. We call for an ecosystem of industry, regulatory, and civil society action to address this danger.

Impact of mergers & acquisitions on job satisfaction and employee productivity in Indian banking

As the Indian economy continues to globalize, the Indian corporate and financial sectors have little option but to consolidate in order to compete in the global marketplace. It is a well-known truth that corporate houses were particularly focused on achieving their company objectives by implementing M&A strategies. According to Price Waterhouse Coopers, the culture of the business houses and the function of human resources must be addressed throughout the due diligence process in order to make proper transaction, since these components have a significant effect in postmerger outcomes. The goal of this research was to see how a merger or acquisition affected job satisfaction and performance. The researchers considered numerous aspects of job satisfaction for this objective. The researchers wanted to see whether employee satisfaction differed depending on their demographic identity. It was agreed to conduct the research solely in the Delhi NCR Region, and 30 bank branches in the region were chosen for the research. The study aims to guide the development of hypothesis. The data was gathered using the survey approach. A systematic questionnaire was created for the aim of data gathering. Frequency Distribution, Cross Tabs, Chi Square, Pearson’s Corelation, and the Friedman Test were used to examine the data. A conclusion was reached based on the analysis. Future research recommendations were also made. Based on the findings, it can be concluded that the majority of workers at various banks were happy with their jobs after the merger. They were pleased with a variety of facets of the job, which might influence employee job satisfaction.

Explaining the Length of the Due Diligence Process in Technology Acquisitions

Drawing on information economics, the theory of the firm and the organizational learning literature, we theorize about the probability of length of the due diligence process. In particular, we examine to what extent uncertainty regarding the value of a target’s resources and differences between the acquiring and target firms lengthen the acquirer’s due diligence effort. Given that we focus on the (target) technological resources we investigate the role of technological uncertainty and absorptive capacity proxying them by the number of pending patent applications of target firms and the technological distance between the two firms’ patent portfolio, respectively. Further, we argue that business relatedness (similarity) reduces the understanding gap. Using a longitudinal data on completed and non-completed technology acquisitions in the UK, we find a significantly positive effect of targets’ pending patent applications on due diligence length that is amplified by technological distance but reduced by business relatedness. Our study contributes to the M&A literature by revealing that higher information gap and uncertainty prolong the due diligence process of the acquirers in the hope of effectively evaluating prospective target firms.

How Private Equity-Backed Buyout Contracts Shape Corporate Governance

This paper explores how contracts in private equity-backed buyouts shape corporate governance in portfolio companies. Drawing upon agency theory and incomplete contracting theory, 34 actual contracts are analysed in detail. Contracts focus on reducing information asymmetries, mainly during the due diligence process, and aligning the goals of managers and PE investors during the investment period and at exit. Residual powers and contingencies are mainly used to deal with incomplete contract designs due to uncertainties. While some contractual mechanisms are comparable to those used in VC contracts, others are idiosyncratic to PE.