Luckin Coffee Inc.: brewing fraud

Abstract

Theoretical basis

This case is based on using the fraud triangle, theoretical aspects like rationalization and motivation for understanding the financial pressures and corporate greed lead to accounting fraud. Building on the corporate governance’s weakness, the case explores the challenges and the changes that the company has to make to survive.

Research methodology

The case study has been entirely based on published resources. The case explores out the reasons why the companies commit accounting fraud using the motivations, financial pressures and the opportunities exploited due to a weak governance system.

Case overview/synopsis

The case deals with a RMB 2.2bn accounting fraud at Luckin Coffee Inc. (L.K.), a US-listed Chinese company, which led to a steep fall in its share price by more than 80% in April 2020. The company’s CEO had to resign in light of the accounting fraud, which involved fabricating the transactions in 2019, the same year it got listed on the NASDAQ stock exchange. The case is a classic example of greed, corporate ambition and flaws in the corporate governance that led to the fraud while framing a course of action for the company moving forward. The case allows the learners to dive deep into the facts to find out why the fraud happened and its repercussions for the company and its various stakeholders. The case can be useful in Accounting, Corporate governance or Ethics modules for both undergraduate and postgraduate students.

Complexity academic level

The case can be used for both postgraduate and undergraduate financial accounting or corporate governance modules or the executive development programmes explicitly dealing with ethical challenges and accounting fraud.

Citation

Mehta, A. (2022), "Luckin Coffee Inc.: brewing fraud", , Vol. 18 No. 4, pp. 602-629. https://doi.org/10.1108/TCJ-03-2021-0051