The bankruptcy of WorldCom and Enron was a shock when it happened. No one expected that these two top blue chip companies would go bankrupt because of corporate mismanagement and accounting malpractice. The estimated costs to the economy that these scandals caused are between $37 billion to $42 billion off the US gross domestic product. Not only has this caused a lost in the GDP but also the major factor is the lost in consumer confidence. Without consumer confidence, there would be no fuel for the economy to go on. Without consumers spending in the market, it would cause a weakening in the economy. .
The bankruptcy of publicly traded companies happened. But it was shocking to see a publicly traded company to file for a bankruptcy not just due to the economy but by other factors. Also, this type of company was not just some weak and small company, but it was suppose to be a strong and stable in preference. What was very important was that it had an immediate affect on us but a domino effect in the economy. It didn't just affect the employees of that company but it affects the economy as a whole. .
With a weakening US economy bankruptcy of publicly traded companies, the amount of companies that went bankrupted had gone up from 176 in year 2000 to 251 in the year 2001. Most of the bankruptcy filings were done by telecom and dot-com firms because lots of them had such a high burn rate and low revenue that they just couldn't sustain themselves. The only thing that was going for them was the hype on the dot-coms. Once people realized that these companies were nothing except for some inflated stock prices, people began to lose confidence and pulled out their investments which had caused the inter bubble to burst. .
The bankruptcies of the publicly traded companies created a recession. Thus, during a time of recession, companies that was still in the market had to find ways in order to pull up their revenues.