Question

Please research and analyze the stakeholder consequences of the Enron/Arthur Andersen debacle.

Answer 1

On June 15, 2002, Andersen was convicted of obstruction of justice for shredding documents related to its audit of Enron, resulting in the Enron scandal. Although the Supreme Court reversed the firm's conviction, the impact of the scandal combined with the findings of criminal complicity ultimately destroyed the firm.

Stakeholder Consequences of the Enron/Arthur Andersen debacle are as follows:

1)In the Enron bankruptcy, the loss is undoubtedly the most investors, especially those who still have a large number of Enron stock ordinary investors. Under US law, after the bankruptcy filing, Enron's assets will give priority to pay taxes, payback bank loans, payment of staff salaries and so on, the already worthless company and then by such a toss, investors certainly lose everything.

2)Affected in this event along with Enron's trading partners and those big financial conglomerates. According to statistics, in the Enron bankruptcy case, Duke(Duke Group) lost 100 million US dollars, Mirren company lost 80 million US dollars, Dino lost 75 million US dollars. In the consortium, J. P Morgan and Citigroup's loss is more severe.

3)Regarding the loss of confidence of investors, they particularly care about whether Enron strictly comply with the US GAAP to ensure the annual reports they get to be reliable and objective. In addition, unethical business practices of Enron can significantly damage its business image and long-standing reputation in the society.

4)First of all, Enron's financial crisis has seriously affected the US and global stock markets. Since the Enron incident, US investor confidence has been seriously affected, Wall Street stock market fell again and again, the stock index create anew low in the stock market. It is estimated that since the Enron incident more than six months after the investors in the US stock market investment assets shrunk by 2.5 trillion US dollars, equivalent to a quarter of US GDP.

5)The US stock market decline affected the global stock market, the major European stock markets and Tokyo, Hong Kong, Singapore, Australia and other stock markets also fell sharply.

6)After the Enron incident, it is more difficulty for company to borrow loans. The borrowing costs are more high, while banks are more reluctant and cautious to lend money to company, thus affecting business investment.

7)Undermine investors’ trust in the reliability of mandated corporate filings. No one wants to do any more investments.