Efficient Capital Markets, Corporate Disclosure and Enron

Abstract

The market capitalization of Enron Corporation declined by $63 billion in the one-year period between January 2001 and January 2002. In practical terms, this means that someone who invested in Enron, Inc. for a comfortable retirement "nest egg" in 2001-say 3000 shares worth about $250,000-would barely have enough money to buy a major home appliance a scant year later. Ironically, Enron's shares were thought prior to January 2001 to experience relatively low volatility. The collapse of Enron dealt a stunning blow, not only to people's wallets and a once-formidable U.S. corporation, but also to a number of conventional theories and core beliefs within the legal academy. The theories and beliefs challenged by the Enron debacle include the following: (1) the U.S. corporate governance system is the best in the world; (2) the U.S. system of corporate disclosure,is the best in the world; and (3) the U.S. capital markets, particularly the markets for large corporations such as those listed on the prestigious New York Stock Exchange (NYSE), are highly efficient. Following a brief corporate history of Enron, Parts I, II, III, and IV of this· Article discuss, in turn, what remains of each of these conventional academic theories in the wake of Enron's collapse.