Enronomics

DEFINITION of 'Enronomics'

A fraudulent accounting technique that involves a parent company making artificial paper-only transactions with its subsidiaries to hide losses the parent company has incurred through business activities.

By transferring losses to off-book entities or wholly-owned subsidiaries, the now-bankrupt energy corporation Enron created one of the largest accounting scandals and securities frauds in history.

BREAKING DOWN 'Enronomics'

Transferring debt in this way creates an artificial distance between the debt and the company that incurred it. Parent Enron continued to hide debt by transferring it (on paper) to wholly-owned subsidiaries, but still recognized revenue from the subsidiaries, giving the impression that Enron was performing much better than it really was.

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