The sharp decline in stock and bond prices following Enron’s collapse has chastened many of the uncritical practitioners of questionable accounting. Corporate reputation is fortunately reemerging out of the ashes of the Enron debacle as a significant economic value. Markets are evidently beginning to put a price-earnings premium on reported earnings that appear free of spin.
Likewise, perceptions of the reliability of firms’ financial statements are increasingly reflected in yield spreads on corporate bonds. Corporate governance has doubtless already measurably improved as a result of this greater market discipline in the wake of recent events. But the Congress is clearly signaling that more needs to be done.