Financial Engineering, Corporate Governance, and the Collapse of Enron
U of Delaware Coll. of Bus. and Econ. Ctr. for Corp. Governance Working Paper No. 2002-001
59 Pages Posted: 16 Jan 2003
Date Written: November 2002
Abstract
Enron plummeted from the 7th largest US firm and six-time winner of Fortune's most innovative firm award to bankruptcy in less than one year. However, management used financial engineering and related-party transactions to disguise Enron's financial condition for over three years. These transactions, board approved, sanctioned by the external auditor, and partially disclosed in SEC filings, put the firm on an economic precipice of which few were aware. Although extreme, Enron's collapse and corporate governance failure has implications for all publicly held firms. We document the existence of potential conflicts of interest throughout Enron's governance structure, conflicts that contributed to the firm's bankruptcy.
Keywords: corporate governance, financial distress
JEL Classification: G3, G32, G33, G38, M49
Suggested Citation: Suggested Citation
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