Collapse Of Enron Research Articles

The Relationship Between Board Gender Diversity and Real Earnings Management in U.S. Companies

In the realm of corporate finance, real earnings management (REM) is crucial for maintaining the transparency and integrity of financial reporting. Unlike accrual-based management, REM involves strategic decisions impacting cash flow and operations, drawing significant attention after the Enron scandal and the Sarbanes-Oxley Act. Recently, the importance of board gender diversity in corporate governance has been increasingly recognized. This study explores the relationship between board gender diversity and REM in U.S. public companies from 2021 to 2023. Using data from BoardEx and Compustat, and employing regression analysis, the research examines how gender diversity influences REM, controlling for variables such as company size and industry type. The findings reveal a significant negative correlation between board gender diversity and REM, indicating that more diverse boards tend to adopt transparent and responsible financial reporting strategies. This study underscores the importance of promoting gender diversity in corporate leadership to enhance ethical and transparent financial reporting, providing valuable insights for corporate governance, policymaking, and business practices.

Enron’s Collapse and the Emergence of a New Magnitude of Ethics within Corporate Governance

In this study, it is argued that the collapse of a single company – Enron – in the USA represented one of the most crucial factors underlying the emergence of ethics with a new dimension in the global business strategy. Enron, one of the most profitable companies in the USA in 1990s, experienced a completely unprecedented disaster and the ensuing investigations revealed that a lack of ethical integrity among the high officials was one of the most crucial reasons for the downfall of such an established company. Shortly after Enron collapse, a number of companies in different countries faced similar consequences and a crucial factor that they all appeared to share was unethical practices. The core aim of this study is to explore how the think-tanks in the corporate world made a quick response regarding the development of the ethical practices within the activities of corporations and how ethics gained greater magnitude within the administration of business activities. To achieve this aim, we undertook a comprehensive content analysis of the relevant secondary data substantiated by a Focus Group Discussion (FGD) attended by academics working in the field of corporate governance, in order to gain relevant insights in the study objectives. The scholarly views of the individuals who participated in the FGD, we believe, can add value to our results by enriching the study. The study findings suggest that the downfall of Enron immediately and hugely contributed towards raising the profile of ethics and the introduction of a series of ethical codes regarding corporate performances.

Ethical Issues in Accounting: A Comprehensive Review and Analysis

Ethical conduct in accounting is paramount for maintaining trust and credibility in financial reporting. This research paper comprehensively reviews and analyses ethical issues in accounting, exploring theoretical frameworks, historical perspectives, case studies, and practical strategies for ethical decision-making. It examines the regulatory framework and professional standards governing accounting ethics, highlighting their impact on practice. Case studies such as the Enron scandal, Satyam Computer Services fraud, and Lehman Brothers collapse provide insights into real-world ethical dilemmas and their consequences. The paper also discusses the role of technology in shaping ethical practices, emphasizing the importance of transparency, data security, and professional judgment. Furthermore, it delves into the significance of ethical leadership and organizational culture in mitigating ethical risks within accounting firms and corporations. By synthesizing qualitative and quantitative data from diverse sources, this paper offers valuable insights for accounting professionals, educators, regulators, and policymakers in fostering a culture of integrity and professionalism within the accounting profession.

Pathways to Consolidate Corporate Governance by Incorporating Gaps in Management Accounting Practices: An Integrative Literature Review Research Approach

Corporate governance receives considerable attention from various stakeholders due to the search for potential agents that cause threats to sound corporate management practices. The fall of Enron and Arthur Anderson was an eye opener toward the journey of long years of corporate scandals and corruption. The Sarbanes-Oxley Act of 2002, which includes various codes and guidelines, evolved as an immediate solution to the problem. Traditionally, accounting has become an integral part of managing corporate governance as it is central to generating financial information for various stakeholders. However, research attention, so far, centers around public accountants due to their universal legitimacy in performing public account attestation services. Management accountants can also play important roles in strengthening corporate governance by instilling sound management accounting practices in various corporate affairs where governance is under threat. This dimension is grossly ignored in the existing literature, narrowing the role of accounting in a broader spectrum of governance. Applying the integrative literature review method as an epistemological paradigm, this study undertakes a theoretical attempt to highlight the roles that management accountants can play in strengthening the governance of firms from both external and internal perspectives. The incremental contribution of the article is to enlarge the remit of corporate governance by aligning the functionalities of management accountants with the mainstream study of corporate governance. It opens further research agendas for academics, practitioners, regulators, and other stakeholders.

Comparative Study on the Structure of China and US VIE Structure

VIE, originally called as Sina-model structure, refers to the structure of agreement-based control that Sina adopted in 2000 when it was indirectly got listed overseas. Back then, such a structure was not called as VIE. Later, due to the Enron scandal, to regulate listed companies from leveraging SPV to transfer debts or loss, the US issued the rules on the consolidation of VIE accounting statements in 2004, which then get through the information of income and risks as the financial statements of the VIE operated domestically and the shell company listed overseas were consolidated. Since then, such a model with agreement-based control has been referred as VIE. The original intention to establish VIE structure may vary for enterprises in the US and in China, but in real practice, they have applied this model. In this paper, the fundamental features, the financial evaluation and the judicial supervision of VIE in both China and abroad have been introduced and compared. In the meantime, some advice has been provided to improve the VIE structure to cope with the trend that multinational companies would get listed in major global trading markets in the future.

The rise and fall of Enron: A cautionary tale of corporate greed and betrayal

The Enron scandal was one of the biggest corporate fraud cases in history, involving the manipulation of financial statements, insider trading, and accounting fraud. Enron, once one of the world's largest energy companies, collapsed in 2001 after it was revealed that top executives had engaged in unethical and illegal practices to inflate the company's earnings and stock price. The scandal had significant repercussions, including the loss of jobs and investments for many people, as well as increased scrutiny of corporate governance and financial reporting practices. The case highlighted the importance of transparency, accountability, and ethical leadership in corporate governance, as well as the need for effective regulatory oversight to prevent future abuses. The Enron scandal serves as a reminder that even the most successful companies can falter when unethical behavior is allowed to go unchecked.

Проверка достоверности финансовой отчетности европейских компаний законом Бенфорда

The manipulation of financial reporting and data reliability in statements has become increasingly prevalent since the Enron scandal in 2001, with companies employing various strategies to enhance their stock prices and attract investors, occasionally resorting to unethical practices. Benford’s Law, a mathematical tool dating back to 1938 and popularized by mathematician Nigrini in 1995 for analyzing tax declarations, is employed in this study as a means of identifying potential accounting irregularities. Benford’s Law, also known as the “law of the first digit”, asserts that numbers starting with one are three times more likely to appear in datasets than predicted by a normal distribution, with calculable probabilities. This study aims to validate European companies’ data using Benford’s Law. The paper explores the theoretical underpinnings of Benford’s Law, reviews key research on the subject, and examines methods for assessing the reliability of reporting data. Additionally, the paper contains an analysis of data from European companies. Based on this analysis, an algorithm has been developed, enabling the verification of reporting data and the assessment of their compliance with Benford’s frequencies. This approach proves valuable for examining financial reporting in various industries, countries, and individual companies. The findings help identify which European countries and sectors have the highest occurrences of financial statement falsification or intentional adjustments.

Does Being More Sustainable Make Firms Less Manipulative? Understanding the Role of Corporate Sustainability and the COVID-19 Crisis in Financial Manipulation

The tendency of firms to distort financial statements has increased. Cases like the Enron Scandal and the 2008 financial crisis as well as their results have made understanding the propensity firms have to manipulate their financial statements important. Moreover, sustainable companies have been suggested as complying better with ethical rules. This study questions whether any difference exists between sustainable and less sustainable firms in terms of the likelihood of financial manipulation. The study also examines how the COVID-19 crisis was reflected in financial manipulation. This study measures the likelihood of financial manipulation being committed using Beneish’s M-score. This research uses the Mann-Whitney U and One-Way ANOVA tests to examine whether or not any difference exists between the pre- and post-COVID-19 periods and between sustainable and less sustainable companies in terms of financial manipulation. The results illustrate sustainable firms to have less of a tendency to commit financial manipulation compared to less sustainable companies, with this likelihood increasing for both groups in times of crisis. The results suggest being sustainable to reduce the likelihood of financial manipulation by supporting the formation of an ethical environment in firms and financial manipulation to be considered as a crisis response for both types of firms during a crisis.

Mapping the corporate governance scholarship: Current state and future directions

AbstractResearch Question/IssuesWe conduct a comprehensive analysis of all scholarly publications in the field of corporate governance (CG) since the Enron scandal of 2001. Using bibliometric methods, we identify prominent themes that have served as the foundation of CG research, prominent topics in the field along with their temporal developments, and recent trends in CG research. In addition, we identify the authors and journals that have had the biggest impact in the field.Research Findings/InsightsWe document that the number of annual publications in CG has increased by a factor of eight since the early 2000s, with research articles being published in a wide variety of general interest journals, as well as in outlets specialized in the field of CG. We identify six research themes as the foundation of CG research: the theoretical foundations of CG, ownership, CG mechanisms and firm outcomes, disclosures, the board of directors, and family firms. We further find 19 major bibliographic keyword clusters that have been explored by researchers in the past 20 years. Research on corporate social responsibility (CSR) and sustainability, governance mechanisms, control mechanisms and disclosures, board diversity, CG in family firms, and CG in the Chinese context are the most dynamic areas of research in recent years.Theoretical/Academic ImplicationsWe systematically analyze the literature on CG and outline theoretical foundations, structuring academic contributions by keyword clusters. Links between keyword clusters as well as the most dynamic research areas are identified. The analysis provides guidance for researchers regarding suitable outlets for the different thematic clusters and helps as a basis to identify research opportunities.Practitioner/Policy ImplicationsWe document growing research interest in the field of CSR and sustainability. The growing body of literature in these areas can inform CG and CSR policies in the future. Our comprehensive bibliographic analysis provides an overview of CG research themes across research disciplines and streams of the literature.

Examination of Historical Advancement of Corporate Governance in India– Contemporary Issues and Way Forward

In the Era of Globalised world, the importance of Fair Corporate Governance policies has been recognized by different countries. From collapse of Wallpaper Group Coloroll in UK, Enron Scandal in US and Satyam Scam in India, all of these countries have witnessed some of the largest Corporate Scams. With the help of good Corporate Governance Policies, a country can protect its economy and investment made therein. It encourages shareholders to invest in capital market and ensure safety of their investment. In India, the corporate governance and its basic pillars on which governance stands i.e. Transparency, Accountability and Fairness, were introduced through Clause 49. This was done only after it was recommended by the Kumar Mangalam Committee. Yet, subsequently the shocking event of Satyam Scam & other Corporate Governance failure continues to hit Indian economic on various occasions.
 This paper will analyse the past experience of some of the famous scams happened in India specifically in past one decade and the lessons learnt thereby. The paper furthermore discusses the current legal issue and the challenges faced by Corporate Governance practices in India.
 Keywords - Corporate Governance, Corporate Scam, SEBI.

Negative accounting stereotype: Enron cartoons

A sample of editorial cartoons published following the wave of accounting scandals in the United States culminating in the collapse of Enron and the demise of the auditors Arthur Andersen LLP was examined to explore the portrayal of accounting, accountants and auditors. The nature and importance of the cartoons was also investigated. While the examination revealed what cartoonists had to say about accounting, accountants and auditing, the purpose was to ascertain the stereotypes conveyed. The cartoonists working from established preconceptions of accounting and accountants redefined and reshaped accounting stereotypes. They replaced the dull but honest image with a negative one, the fraudulent accountant. However, the image of the male accountant survived. As social critics, the cartoonists focused on the consequences on employees and stockholders but neglected to address the consequences for business institutions.

E-Mail Network Patterns and Body Language Predict Risk-Taking Attitude

As the Enron scandal and Bernie Madoff’s pyramid scheme have shown, individuals’ attitude towards ethical risks can have a huge impact on society at large. In this paper, we compare risk-taking attitudes assessed with the Domain-Specific Risk-Taking (DOSPERT) survey with individual e-mail networking patterns and body language measured with smartwatches. We find that e-mail communication signals such as network structure and dynamics, and content features as well as real-world behavioral signals measured through a smartwatch such as heart rate, acceleration, and mood state demonstrate a strong correlation with the individuals’ risk-preference in the different domains of the DOSPERT survey. For instance, we found that people with higher degree centrality in the e-mail network show higher likelihood to take social risks, while using language expressing a “you live only once” attitude indicates lower willingness to take risks in some domains. Our results show that analyzing the human interaction in organizational networks provides valuable information for decision makers and managers to support an increase in ethical behavior of the organization’s members.

Editorial: Advances in corporate governance practices

Corporate governance has gone through three decades of profound changes in terms of new regulations, new practices, and environmental conditions. Many countries drafted guidelines for best corporate governance practices following Cadbury report (Cadbury, 1992). These practices were mainly related to the board of directors (composition and functioning), internal controls, and internal audit. The Enron scandal followed by the collapse of Arthur Andersen, one of the big five audit firms, and the enactment of the “Public Company Accounting Reform and Investor Protection Act” (Sarbanes-Oxley law) in 2002 were other milestones in the evolution of corporate governance. This law brought about significant changes related to public company accounting oversight, auditor independence, financial disclosure, and corporate responsibility. The financial crisis in 2008 started in the United States and has shaken the world economy. This crisis was due to weak corporate governance that led to fraudulent financial reporting and excessive risk-taking. Grove and Victoravich (2012) consider CEO duality, lack of board independence, weak management control systems, short-termism, weak codes of ethics, and opaque disclosures among the main drivers of this crisis. The COVID-19 has consistently shown that firms with better corporate governance and corporate social responsibility practices were the most resilient entities during the first quarter of the pandemic (Ramelli & Wagner, 2020). All these topics are addressed in this collection of high-quality research papers of this year’s first issue of Corporate Board: Role, Duties, and Composition.

Conflicts of Interest at an Organization's Highest Authority: How the District of Columbia's Rules of Professional Conduct Can Fail to Protect Private Organizations

This Article examines how the District of Columbia’s incomplete incorporation of the Model Rules of Professional Conduct into its own Rules of Professional Conduct has created a scenario in which wrongdoing inside a private organization can flourish. In 2002, following the Enron scandal, the American Bar Association (ABA) revisited and revised its Model Rules of Professional Conduct. The ABA nevertheless took a conservative route, rejecting rules long proposed by experts which would have permitted attorneys aware of corporate crimes, fraud, and other wrongdoing to report their concerns to individuals or entities outside the organization’s reporting structure. Additional scandals unfolded contemporaneous with the ABA’s revisions, instigating federal legislation, the Sarbanes-Oxley Act of 2002. Regulations promulgated under that Act included the reporting out opportunity long sought by ethics experts. In light of the new federal legislation, the ABA, in 2003, finally passed a revised Model Rule 1.13 which requires attorneys to report wrongdoing up the ladder to an organization’s highest authority and permits those attorneys to report out such wrongdoing in the event the highest authority failed to respond appropriately. Unfortunately, the District of Columbia did not heed these lessons. Citing antiquated notions of client confidentiality, the District adopted an approach which requires an attorney to report wrongdoing up the ladder but then fully accept the results of that reporting, even if the highest authority to whom the attorney reports the misconduct is the one engaging in the misconduct. In so doing, the District has created a structure which incentivizes the termination of ethical attorneys in order to cover up corporate wrongdoing. This Article recommends changes to the District of Columbia’s Rules of Professional Conduct which will enable the District to take the lead in promoting a bar committed to ethical conduct and appropriate corporate governance.

The Impact of Securities Regulation on New Keynesian Firms

Borrowing firms resetting output prices infrequently are less able to insulate their profits from economic shocks, the impact of which on performance is costly for lenders to verify. If securities regulation is lenient, sticky-price firms might face greater financial frictions due to managerial misreporting. We document that S&P 500 firms with stickier prices paid lower loan spreads and provided collateral less often following the passage of Sarbanes-Oxley Act (SOX), and the results are robust to using staggered implementations of Section 404 to isolate the effects that were uniquely due to SOX. Firms with stickier prices are negatively associated with daily returns around the Enron scandal but positively associated with returns around the SEC's approval of the change in listing requirements. We develop a New Keynesian model of an economy in which firms feature differential output-price stickiness. The model mirrors both pre- and post-SOX scenarios and shows that when paying higher credit spreads, firms with stickier prices have lower debt capacity, are endogenously more volatile in equity returns, and display higher capital-investment and stock-price sensitivities to monetary policy shocks. Our further empirical analyses yield results that are in line with these model predictions.

The effect of auditor type on audit quality in emerging markets: evidence from Egypt

PurposeAlthough a number of studies suggest that big audit firms provide higher audit quality in strict legal environments, empirical evidence remains inconclusive. As little is known about the effect of auditor type on audit quality in less strictly legal environments, this study aims to investigate the impact of auditor type on audit quality in the Egyptian market.Design/methodology/approachData of Egyptian-listed companies during the period 2011–2018 are used. To examine the impact of auditor type on audit quality, ordinary least square regression and robust standard errors clustered at year and industry level are used. This study uses discretionary accruals as a proxy for audit quality. Several additional analyzes are conducted to assess the robustness of the main results, including alternative measures of audit quality and auditor type.FindingsThe results show that audit firms tend to provide higher audit quality when they are affiliated with a foreign audit firm. However, Big 4 auditors do not provide higher audit quality compare to their counterparts. Additionally, the governmental agency, accountability state authority, that monopolize audit function in state-owned companies do not appear to be associated with higher audit quality. Finally, local audit firms have a negative association with audit quality. This may be their strategy to secure future clients that seek low-quality audits.Research limitations/implicationsThis study suggests that affiliation with foreign audit firms will help the Egyptian firms to develop their abilities by using advanced technology and techniques and transfer rare expertize to the Egyptian auditors. This study also shows that the strategy adopted by many Egyptian audit firms to affiliate with foreign auditors reflects the desire of these firms to be included in one tier alongside Big 4 audit firms to increase their market share under a claim of providing a higher audit quality.Originality/valueThis study adds to the rare but growing body of literature by investigating how auditor type affects audit quality in the context of less strictly legal environments. The results are important, as investors, standards-setters and regulators have growing concerns over audit quality since the Enron scandal. The findings suggest that audit quality depends on auditor type. These findings have important implications for investors, standards-setters and auditors interested in auditor oversight, audit quality and auditor choice.

Fair Value Accounting and Implications for the Auditing Profession: Historical Overview

This paper explores the link between the introduction of fair value measurements (FVM) and the development of the Global Financial Crisis (GFC) in 2008-9. The paper aims to provide an historical analysis of the development of the Enron scandal with a focus on fair value accounting (FVA) and provides a narrative literature review of the subsequent economic downturn, its effect on the auditing profession and audit fees arrangements, implications for FVA, and response of global institutions and standard setters. It provides a theoretical explanation of the underlying antecedents using existing accounting theories. For each reviewed stream of research, the paper establishes the theoretical underpinning and discusses its application supported by the context. The content analysis using NVivo software was employed to analyse existing research and available published information. Based on the comprehensive literature review, the study arrives at two main findings. First, the paper concludes with the controversial use of FVM and establishes a direct connection between Enron’s collapse, the GFC, and improper FVM practices. Secondly, the study identifies the current pricing strategy for audit as an industry response to the abuse of external audit arrangements regarding FVA. Supported by the literature review findings, the paper contributes to the audit research by providing deep insights into the connection between FVA practices, the GFC and development of the audit profession. The paper addresses the lack of foundational research in FVA and establishes a solid background for further studies on FVA and audit profession development in general.

The Effect of Auditor Type on Audit Quality: An Empirical Analysis

Purpose Although a number of studies suggest that big audit firms provide higher audit quality in strict legal environments, empirical evidence remains inconclusive. Since little is known about the effect of auditor type on audit quality in less strictly legal environments, this study aims to investigate the impact of auditor type on audit quality in the Egyptian market. Design/methodology/approach Data of Egyptian-listed companies during the period 2011-2018 are employed. To examine the impact of auditor type on audit quality, ordinary least square regression and robust standard errors clustered at year and industry level are used. This study employs discretionary accruals as a proxy for audit quality. Several additional analyses are conducted to assess the robustness of the main results, including alternative measures of audit quality and auditor type. Findings Our results show that audit firms tend to provide higher audit quality when they are affiliated with a foreign audit firm. However, Big 4 auditors do not provide higher audit quality compare to their counterparts. Additionally, the governmental agency, Accountability State Authority (ASA), that monopolize audit function in state-owned companies do not appear to be associated with higher audit quality. Lastly, local audit firms have a negative association with audit quality. This may be their strategy to secure future clients that seek low-quality audits. Originality/value This study adds to the rare but growing body of literature by investigating how auditor type affects audit quality in the context of less strictly legal environments. Our results are important since investors, standards-setters and regulators have growing concerns over audit quality since the Enron scandal. The findings suggest that audit quality depends on auditor type. These findings have important implications for investors, standards-setters and auditors interested in auditor oversight, audit quality and auditor choice. Keywords: Audit quality, Big 4, Second-tier auditors, Third tier auditors, Local audit firms, Accountability State Authority JEL Classification M42

Enron Scandal: Evidence of A Missed Opportunity to Detect and Halt Fraud and Bankruptcy

Enron Scandal: Evidence of A Missed Opportunity to Detect and Halt Fraud and Bankruptcy

Sensemaking Corporate Social Responsibility, Reflexive Organisational Change and Moral Transpose, the Case of Volkswagen ‘Diesel Dupe’ Crisis

The world has witnessed corporate scandals of monstrosity magnitude. The Enron Scandal, the Nike Sweatshop scandal and the recent Johnson and Johnson baby talc in 2018 are some dishonors that reshaped the business world and reinvigorated the importance of business ethics. Indeed, supranational and national movements such as the Global Reporting Initiatives have responded to these scandals by imposing stricter corporate reporting to instill greater transparency and corporate responsibility. Ironically, despite unwavering efforts, corporations are still blatantly flouting regulations. The Volkswagen “diesel dupe” crisis is a stark reminder of the inherent weakness of current regulations. Despite Volkswagen’s staunch adherence to those stringent reporting guidelines, they breached ethics to the core, creating a tsunami of vehicle recalls, massive social, political and legal repercussions. Volkswagen’s cheat device is a ‘creative destruction’ that challenged the fundamental usefulness of corporate reporting. Corporate social responsibility has evolved tremendously, now taking the form of positivistic reporting patterns. Corporations are measured by their ecological, social and economic performance where they flamboyantly table those data and information to garner stakeholders’ support and legitimacy. However, a pragmatic approach towards corporate social responsibility is self-defeating. It erodes and dilutes a corporation’s ability to make sense, communicate and adapt to their externalities. Instead, corporations boast of their corporate prowess and triple bottom line. Using Volkswagen as a subject, this paper exposes the inherent weaknesses of a positivistic corporate reporting approach to social responsibility. A positivistic approach such as this cannot engender a truthful, honest and open posture in business corporations. Instead, this paper exemplifies that a meaningful sensemaking corporate social responsibility instills reflexive organisation change and moral transpose within corporations. This paper underlines this reflexive organisational change and moral transpose in Volkswagen as they encounter the diesel crisis. This study is novel and greatly enhances previous literatures in corporate social responsibility by instilling an appropriate model to underline these momentous reflexive organisational changes and moral transformations in Volkswagen.