A FINANCIAL RISK AND FRAUD MODEL COMPARISON OF BEAR STEARNS AND LEHMAN BROTHERS: WAS THE RIGHT OR WRONG FIRM BAILED OUT?

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Abstract

In March 2008, the US government bailed out a failing Bear Stearns by arranging a sale to JP Morgan Chase, with US government guarantees for many Bear Stearns’ toxic assets that came with the acquisition. In September 2008, the US government failed to bail out a failing Lehman Brothers, which then went into bankruptcy. Soon thereafter, the US government established a bailout program for many other failing financial institutions. This paper uses financial risk and fraud models to attempt to answer the question as to why Bear Stearns was bailed out, but Lehman Brothers was not. Based on the analysis, was the right or wrong firm bailed out? In summary, these financial risk and fraud models show potential for developing effective risk management monitoring and stronger corporate governance in order to enhance relationships between management, financial reporting, and the stability of the economic system in crisis and post-crisis conditions.

Keywords: Financial Risk, Fraud Models, Risk Management Monitoring

How to cite this paper: Grove, H., & Clouse, M. (2013). A financial risk and fraud model comparison of Bear Stearns and Sehman Brothers: was the right or wrong firm bailed out? [Conference issue]. Corporate Ownership & Control, 11(1-1), 68-87. https://doi.org/10.22495/cocv11i1conf1p7