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Case Analysis: Enron; Ethics, Social Responsibility, and Ethical Accounting as Inferior Goods?

Muhammad Rashid ()

MPRA Paper from University Library of Munich, Germany

Abstract: In 2001 soon after the Asian Crises of 1997-1998, the Dotcom Bubble, 9/11, the Enron crises triggered a fraud crisis in Wall Street that impacted the market to the core. Since then scandals such as the Lehman Brothers and WorldCom in 2007-2008 and the Great Recession have surpassed it, Enron still remains one of the most important cases of fraudulent accounting. In 2000’s even though the financial industry had become highly regulated, deregulation of the energy industry allowed companies to place bets on future prices. At the peak of the dotcom bubble Enron was named as a star innovator but when the dotcom bubble burst, Enron’s plan to build high speed internet did not flourish and investors started to realize losses. Furthermore, the financial losses of the operations were hid using the market to market accounting technique instead of book value and using special purpose entities to hide debt. The root cause that was identified as a company with a toxic corporate culture focused on officer compensation rather than social responsibility and hence faulty leadership. Is it possible then that; ethical accounting practices, social responsibility and ethics all become inferior goods as income rises in an ‘irrationally exuberant’ era?

Keywords: Keywords: Enron (ENE; ENRN); Dotcom Bubble; Accounting Fraud; Deregulation; Speculation; Corporate Culture; Social Responsibility; Government Intervention; Risk Management; Consumer Behavior; Energy Markets (search for similar items in EconPapers)
JEL-codes: G32 H12 K32 K4 M1 M12 M14 M4 N0 (search for similar items in EconPapers)
Date: 2020-01-19
New Economics Papers: this item is included in nep-cfn, nep-his, nep-law and nep-sea
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