The Interconnectedness of Earnings Management, Corporate Governance Failures, and Global Economic Stability: A Critical Examination of the Impact of Earnings Manipulation on Financial Crises and Investor Trust in Global Markets
Adegbenga Ismaila Alao, Olubukola Omolara Adebiyi, Oluwaseun Oladeji Olaniyi
Asian Journal of Economics, Business and Accounting · pp. 47–73 · Published 30 Oct 2024
10.9734/ajeba/2024/v24i111542Abstract
This study critically examines the interconnectedness of earnings management, corporate governance failures, and their impact on global economic stability and investor trust. Focusing on the Enron (1993–1995) and Wirecard (2015–2019) scandals, the research identifies key financial and governance indicators that contributed to these collapses, including CEO duality, weak board oversight, and manipulated financial reporting. Data for the analysis were drawn from corporate financial reports, macroeconomic indicators sourced from the World Bank, and stock market data from MarketWatch. Financial ratio assessments and regression models reveal a statistically significant negative relationship between GDP growth and abnormal returns for Enron (p = 0.014), while inflation had a strong positive impact on abnormal returns in both cases (p < 0.001). Time series analysis was applied to assess the macroeconomic consequences of corporate collapses on global financial markets. The findings demonstrate how declining GDP growth and rising inflation amplify market responses to governance failures. Recommendations include enhancing corporate governance frameworks, intensifying regulatory enforcement, and fostering global regulatory cooperation to safeguard financial markets and restore investor trust.
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