Efficient Capital Markets, Corporate Disclosure and Enron

Yale Law School Yale Law School Legal Scholarship Repository Faculty Scholarship Series Yale Law School Faculty Scholarship 1-1-2004 Efficient Capital Markets, Corporate Disclosure and Enron Jonathan R. Macey Yale Law School Follow this and additional works at: http://digitalcommons.law.yale.edu/fss_papers Part of the Law Commons Recommended Citation Macey, Jonathan R., Efficient Capital Markets, Corporate Disclosure and Enron (2004). Faculty Scholarship Series. Paper 1419. http://digitalcommons.law.yale.edu/fss_papers/1419 This Article is brought to you for free and open access by the Yale Law School Faculty Scholarship at Yale Law School Legal Scholarship Repository. It has been accepted for inclusion in Faculty†¦show more content†¦The downfall of Enron also illustrates both the importance of corporate governance to corporate performance, and the inherent susceptibility to corruption present in any system of corporate governance. Further, from an international perspective, one is tempted to ask whether the Enron debacle could happen in Europe or Japan or whether it demonstrates a vulnerability unique to the U.S. system of corporate governance. I have three observations to make on this issue. First and foremost, the Enron fiasco demonstrates the acute pressure felt by U.S. corporate management to produce superior performance results. As discussed later in this Article, Enron s financial maneuvering, which led to the company s massive 2001 restatement of earnings, was prompted only in 1997 whe n Enron came under significant pressure from investors. Essentially, Enron s corporate performance was consistent for a considerable period of time prior to 1997. 4 However, between 1996 and 1997, the firm s profits and return on equity each declined by ninety percent. 5 The sudden deterioration in performance pressured management to engage in transactions that increased revenue and moved debt off of the firm s 3 This monitoring tradeoff is developed in more detail in my Article coauthored with Arnoud Boot, also presented in this Symposium. See ArnoudShow MoreRelatedA Report On Corporate Finance Management1485 Words   |  6 PagesIntroduction This coursework on corporate finance management is based on real-world, based on Sainsbury’s grocer. Sainsbury’s is one of the largest supermarkets in the UK, founded in 1869, by John James Sainsbury. In 1922 Sainsbury’s becomes the largest grocery retailer. 7th May 2014, Sainsbury’s posted a 5.3 percent rise in annual profit, its slowest growth in nearly a decade. In October 1st 2014 Sainsbury’s announces, cutting its annual sales forecast and said it would review its dividend asRead MoreSignificance of Financial Reporting1702 Words   |  7 PagesPatel The Collapse of the Corporate Giants like Enron and WorldCom have raised the imminent question, which always remains in the back of an investor ¡Ã‚ ¦s mind,  ¡Ã‚ §Can I trust my hard earned Capital in somebody else ¡Ã‚ ¦s hand ? ¡Ã‚ ¨ This is not the first time that investors have lost their trust in companies however the fact does not change that the cost of capital from the market has increased significantly for the companies. Investors have started to invest their capital in risk free securities ratherRead MoreSarbanes Oxley Act of 20021322 Words   |  6 Pagesenvironment as well as efficiency in management, integration of capital flow and domestic savings. For instance, the Securities Act of 1933 which provides regulations and laws to those offering corporate stocks to the public (University of Phoenix, 2014). Another regulatory environment is the Securities Act of 1934. The Securities Act of 1934 regulates and uses laws for trading stocks on markets that are consider as secondary markets like the New York Stock Exchange. The Securities Act of 1933 alsoRead MoreCorrelation Between Corporate Transparency N Business Performance3603 Words   |  15 PagesExamine the correlation between corporate transparency and business performance. Is there a relationship between good governance and on-going business practices? What criteria are or should be considered? Ranjitha Subramanya MBA 600 Capital University Ranjitha Subramanya MBA 600 Final paper 1 TABLE OF CONTENTS Contents Abstract Corporate governance Organization for Economic Co-operation and Development (OECD) principles, objectives and standards. Transparency in doingRead MoreRegulation of Financial Accounting and Reporting: the Pro-Regulation Perspective1237 Words   |  5 PagesLundholm, the accounting disclosures specifically for firms that make equity offerings has a significant increase within the six months before the offering occurs particularly in those categories the firm has discretion (cited in Healy and Palepu 2001, p.421). It shows that the business might not disclose all relevant information to users or is withholding information unless the disclosures is for their benefits, which posts a question of the reliability of voluntary disclosures. Furthermore, the existenceRead MoreArgumentative Essay1538 Words   |  7 PagesArgument in favour of â€Å"Free market† regulation: 2.1 Introduction 6 2.2 Information needs 6 2.3 Market for managers 7 2.4 Market for Corporate takeovers 7 2.5 Auditing 7 2.6 Conclusion 7 3.0 Summary of both arguments and position taken: 8 4.0 Footnotes: 9 5.0 References: 10 1.0 In favour of tight accounting regulation: 1.1 Introduction: Since the share market crash of 1929, accountingRead MoreRwt1 Business Report Essay2419 Words   |  10 Pagesthe Securities and Exchange Commission (SEC) and the American Institute of Certified Public Accountants, are important to the efficient functioning of the economy. It is in the best interest of a capital market that investors and potential investors have complete and reliable information provided them so they can make proper decisions in resource allocation as well as capital distribution. Introduction Making sound investment decisions is contingent upon investors being provided with reliableRead MoreAn Ipo Of A Company Going Public899 Words   |  4 Pageslaw firm to engage in the tedious detailed disclosure documents needed for the IPO prospectus that is included in the Securities Exchange Commission Form S-1. The Securities Exchange Commission (SEC) overseas publicly trades companies and there are various documents that need to be disclosed which include financial statements, management information circulars, management’s discussion and analysis (MDA), earnings release and prospectuses. Most disclosure documents must be filed with securities regulatorRead MoreThe Sarbanes Oxley Act Of 20024626 Words   |  19 Pagesresponse to fraudulent activity in the finance department of many corporations. Companies such as WorldCom and Enron falsified their financial statements; investors view these to judge whether a company is worth an investment. Essentially these companies lied to investors to steal their money. Numerous scandals broke out in the early 2000s, losing the trust of investors in the public market. Similar to the Great Depression, investors lost trust quickly. President Bush was practically forced to signRead MoreEssay on Ethics And Enron1901 Words   |  8 PagesENRON Introduction Enron was the country’s largest trader and marketer for electric and natural gas energy. Its core business was buying energy at a negotiated price and later, selling the energy when prices increased. As an energy broker, Enron provided a service by allowing producers to negotiate a certain price while Enron took the risk that prices would fall below what it bought energy. Buyers of energy also benefited because Enron could ensure the supply of energy. In 2000 Enron was listed