Case | HBS Case Collection | July 2012

New Century Financial Corporation (Abridged)

by Krishna G. Palepu, Suraj Srinivasan and Ian Cornell

Abstract

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 contributer 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; audit committees; financial management; control systems; securities; loan evaluation; Accounting; Value; Financial Services Industry; United States;

Citation:

Palepu, Krishna G., Suraj Srinivasan, and Ian Cornell. "New Century Financial Corporation (Abridged)." Harvard Business School Case 113-002, July 2012.