The Role of SPEs in the Enron Scandal and Its Implications for China

Special purpose entity (SPE) is a type of financial instrument that can legally help companies reduce debt, raise capital, reduce stress, and reduce losses and is widely applied in U.S. companies. However, from Enron Scandal, SPE may also let firms be exposed to certain risks. This paper aims to study the role of SPE in the Enron financial frauds. We also examine the application of SPE in the Chinese market and discuss its future development. A case study was conducted on Enron, and we also studied the current applications of the existing SPEs in China. This paper finds that SPEs did facilitate Enron's growth and contributed to its failure because SPE may lower the cost of financial misreporting. Therefore, we suggest that more subtle regulations should be imposed on SPE. We also review the Chinese SPEs and suggest that relevant regulations should be applied to protect investors' interests.