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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  

Stuart Gillan

University of Georgia - Department of Finance

John D. Martin

Baylor University - Department of Finance, Insurance & Real Estate; Baylor University - Department of Finance, Insurance & Real Estate

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

Gillan, Stuart and Martin, John D., Financial Engineering, Corporate Governance, and the Collapse of Enron (November 2002). U of Delaware Coll. of Bus. and Econ. Ctr. for Corp. Governance Working Paper No. 2002-001. Available at SSRN: https://ssrn.com/abstract=354040 or http://dx.doi.org/10.2139/ssrn.354040

Stuart L. Gillan

University of Georgia - Department of Finance ( email )

Terry College of Business
Athens, GA 30602-6253
United States

John D. Martin (Contact Author)

Baylor University - Department of Finance, Insurance & Real Estate ( email )

P.O. Box 98004
Waco, TX 76798-8004
United States
254-710-4473 (Phone)
254-710-1092 (Fax)

HOME PAGE: http://hsb.baylor.edu/html/martinj

Baylor University - Department of Finance, Insurance & Real Estate ( email )

P.O. Box 98004
Waco, TX 76798-8004
United States
254-710-4473 (Phone)
254-710-1092 (Fax)

HOME PAGE: http://hsb.baylor.edu/html/martinj

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