Inside Agency: The Rise and Fall of Nortel

Abstract

agency theory, executive compensation, financial misstatement, income smoothing, stock options,

Is information on boards useful for investors’ appraisal of a firm's value?

“…Further, the writers highlight Nortel's growth through the acquisitions of companies such as Bay Networks, Clarify, Periphonics, Shasta networks and Cambrian Systems (Weber et al, 1999). Fogarthy et al (2009) indicate that other Telecom firms were experiencing large fluctuations in earnings but Nortel exceeded expectations consistently for 16 quarters. Analysts did not question this but accredited this to the expertise of the company's CEO and the business strategy that Nortel had adopted (Fogarthy et al, 2009).…”

“…Nortel originally operated in telecommunications equipment and in 1998 in efforts to remain competitive the company expanded into net gear (Weber & Reinhardt, 2009). The company was at its peak in July 2000 when it represented more than 37% of the Toronto Stock Exchange (Fogarthy, Magnan, Markarian & Bohdjalian, 2009). Nortel grew through aggressive acquisitions and analysts promoted the company as being sustainable (Fogarthy et al, 2009).…”

“…The company was at its peak in July 2000 when it represented more than 37% of the Toronto Stock Exchange (Fogarthy, Magnan, Markarian & Bohdjalian, 2009). Nortel grew through aggressive acquisitions and analysts promoted the company as being sustainable (Fogarthy et al, 2009). In short Nortel was hailed as a great Canadian company.…”

“…In short Nortel was hailed as a great Canadian company. By 2001 Nortel stock trading was suspended as the stock prices fell enormously due to Nortel's now known accounting irregularities (Fogarthy et al, 2009). …”

“…Canada took pride in Nortel which made up 37% of the Toronto Stock Exchange in 2000 (Fogarthy, Magnan, Markarian & Bohdjalian, 2009). Nortel under new leadership in 1997 expanded from exclusively being in the telephone industry into also providing internet equipment (Weber, J., Reinhardt, A.…”