When the Enron Corporation Went Bankrupt in 2001, This Collapse

question 415

Multiple Choice

When the Enron Corporation went bankrupt in 2001, this collapse was the largest corporate failure in history and the name has since become synonymous with corporate fraud. Enron's board of directors failed to monitor, question, or analyze the company's management and business practices, and billions of dollars' worth of unscrupulous activities were conducted to make Enron look more financially stable than it was. Though the board had access to evidence that something was wrong with Enron's business practices, a culture had developed in which conformity was encouraged and diverse views not acceptable. In other words, Enron fell prey to

• A)social facilitation.
• B)group polarization.
• C)social loafing.
• D)groupthink.
• E)the fundamental attribution error.

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Definitions:

Unsystematic Risk

The risk associated with a specific company or industry, also known as non-market risk, diversifiable risk, or idiosyncratic risk.

Total Risk

The total variability in returns of an investment, encompassing both unsystematic and systematic risk factors.

Systematic Risk

The risk inherent to the entire market or market segment, also known as non-diversifiable risk, affecting all investments to some degree.

Beta Coefficient

A parameter for assessing the fickleness, or inherent market risk, of a security or a composite of investments compared to the overall market.