Journal of Business Ethics

, Volume 52, Issue 2, pp 179–188 | Cite as

Financial Institutions and Trustworthy Behavior in Business Transactions

  • Thomas F. Cosimano
Article

Abstract

This paper uses the bankruptcy proceedings for Enron to discuss the role of financial institutions in business transactions. Using recent work by Dixit a business transaction is portrayed as a prisoners' dilemma problem between competing firms. The financial institution's role in this world is to provide information and enforce contracts so that the parties to the business deal act cooperatively. This role is recognized in the law under the heading of Fiduciary Responsibility. In the Enron case the bankruptcy examiner has argued that the Tier 1 financial institutions for Enron failed to carry out their fiduciary responsibility. As a result, the examiner has asked a fact finder to subordinate the claims of the Tier 1 financial institutions to other debt holders for Enron.

Enron equitable subordination fiduciary responsibility financial institutions trust 

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Copyright information

© Kluwer Academic Publishers 2004

Authors and Affiliations

  • Thomas F. Cosimano
    • 1
  1. 1.Department of Finance, Mendoza College of BusinessUniversity of Notre DameNotre DameU.S.A.

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