What are the reasons why Enron collapsed?
Enron dealt in energy. According to Infinite Energy, the first and main cause of Enron's collapse was failed investments. Enron invested money in fiber-optic networks, a power plant in India and water distribution in the United Kingdom, to name a few. While a company the size of Enron could afford occasional losses, the mounting, failed investments added up and created a plethora of debt. * Hidden Losses
Infinite Energy states that the second and most shady reason for Enron's collapse was the hidden losses within the company. The company allegedly enriched itself and formed partnerships specifically designed to hide $500 million in company losses. Because these losses were hidden, many continued buying Enron stock. According to the Journal of Accountancy, the bottom fell out underneath this plan in early 2001 when stock prices plummeted. Enron used false and deceptive methods to creatively hide its dealings, which led to losses of investors and creditor trust. * Competition
In the late 1990s, Enron started receiving stiff competition from other energy companies such as Duke Energy, Dynergy and El Paso, according to the Journal of Accountancy. With each new competitor, Enron profited less and less. Enron had previously thrived on large, rapid trading, which became less frequent with more competition and reduced energy costs. Instead of examining whether or not they should adjust their trading habits, the company continued on the same track they had previously operated on without regard to the changing environment around them. * Energy Price Collapse
The collapse in energy prices and the end of the California energy crisis was the death nail for Enron, according to Infinite Energy. In early 2001, California consumed less energy than it did in two previous years and the government introduced price caps for power companies like Enron. These caps meant that Enron could no longer collect as much...
Please join StudyMode to read the full document