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(Revised from original 2008 version)
New Century Financial Corporation
After years of rapid growth and stock price appreciation, New Century Financial Corporation, one of the largest subprime loan originators in the U.S., reported accounting problems in early 2007. The resulting liquidity crisis forced the company to file for Chapter 11 bankruptcy protection. According to the Bankruptcy Examiner assigned to investigate New Century, the company's troubles "were an early contributor to the subprime meltdown" which fueled a financial crisis in the U.S. and beyond. The case study examines New Century's business model and accounting practices and focuses on the role of management, audit committee, and external auditors in the problems at New Century based on the findings of the Bankruptcy Examiner.
Keywords: Accounting Audits;
Insolvency and Bankruptcy;
Financial Services Industry;
Palepu, Krishna G., Suraj Srinivasan, and Aldo Sesia. "New Century Financial Corporation." Harvard Business School Case 109-034, October 2009. (Revised from original October 2008 version.)