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The Fall of Enron

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  • Paul M. Healy
  • Krishna G. Palepu

Abstract

The financial reporting and disclosure problems at Enron, as well as the high market valuations for its stock raise troubling questions about the functioning of capital market intermediaries, regulators and governance experts whose are supposed to ensure the effective functioning of the stock market. This paper examines the functions of key capital market intermediaries and analyzes how their own governance and incentive problems may have contributed to Enron's rise and fall. We conclude by proposing system modifications to resolve the observed problems.

Suggested Citation

  • Paul M. Healy & Krishna G. Palepu, 2003. "The Fall of Enron," Journal of Economic Perspectives, American Economic Association, vol. 17(2), pages 3-26, Spring.
  • Handle: RePEc:aea:jecper:v:17:y:2003:i:2:p:3-26 Note: DOI: 10.1257/089533003765888403
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    1. Lin, Hsiou-wei & McNichols, Maureen F., 1998. "Underwriting relationships, analysts' earnings forecasts and investment recommendations," Journal of Accounting and Economics, Elsevier, vol. 25(1), pages 101-127, February.
    2. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, Oxford University Press, vol. 84(3), pages 488-500.
    3. Brian J. Hall & Thomas A. Knox, 2002. "Managing Option Fragility," NBER Working Papers 9059, National Bureau of Economic Research, Inc.
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