An analysis of Lehman Brothers bankruptcy and Repo 105 transactions

Charles Hines, Jerry Kreuze and Sheldon Langsam

American Journal of Business, 2011, vol. 26, issue 1, 40-49

Abstract: Purpose - The purpose of this paper is to investigate the bankruptcy of Lehman Brothers, with particular focus on its use of Repo 105 transactions. Design/methodology/approach - The use of the Lehman's bankruptcy report produced in part by Anton R. Valukas was used as a basis to explain how Lehman maintained acceptable leverage ratios through the use of Repo 105 transactions to paint a better picture of its financial position than actually existed. Findings - The study concludes that Lehman's accounting method choice disguised its real problems, perhaps long enough for bankruptcy to become the only option. Practical implications - Lehman's bankruptcy becomes part of a growing history of business failures where accounting principles have become the focus. The failure of Lehman reminds us that financial reporting must remain transparent, allowing users to make informed decisions with confidence. Originality/value - This bankruptcy provides a painful reminder that financial reporting must allow users to differentiate among investment alternatives, based on the relative, factual financial position of the investment. The credibility of our reporting model is at stake.

Keywords: Bankruptcy; Banks; Financial reporting; Repurchase agreements (search for similar items in EconPapers)
Date: 2011
References: View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:ajbpps:v:26:y:2011:i:1:p:40-49

DOI: 10.1108/19355181111124098

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