Financial Engineering, Corporate Governance, and the Collapse of Enron
University of Georgia - Department of Finance
John D. Martin
Baylor University - Department of Finance, Insurance & Real Estate
U of Delaware Coll. of Bus. and Econ. Ctr. for Corp. Governance Working Paper No. 2002-001
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.
Number of Pages in PDF File: 59
Keywords: corporate governance, financial distress
JEL Classification: G3, G32, G33, G38, M49
Date posted: January 16, 2003
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