Final answer:
It is generally believed to be false that companies intentionally hide losses from fraud, as corporate governance exists to ensure transparency. Bankruptcy allows companies to restructure their debts while continuing operations. Strong corporate governance is essential for preventing fraud and providing accurate information to stakeholders.
Step-by-step explanation:
It is generally believed to be false that companies would want to hide their losses from fraud rather than make them public. However, due to concerns about reputation, legal consequences, and financial impacts, some firms might be tempted to conceal these losses. Nevertheless, corporate governance mechanisms are in place to ensure transparency and accountability within companies. This is critical because accurate information allows shareholders, regulators, and other stakeholders to make informed decisions.
Bankruptcy as a Strategic Decision
Many firms in the United States file for bankruptcy every year, yet they still continue operating. This is because filing for bankruptcy can provide legal protection from creditors while a company restructures its debts. Instead of shutting down, bankruptcy proceedings like Chapter 11 allow a business to stay open, maintain employment for its workforce, and work on returning to profitability.
Corporate Governance and Information Transparency
Effective corporate governance is essential for preventing fraud and ensuring that accurate information is available. When corporate governance fails, as in the case of Lehman Brothers, it can have disastrous effects. Therefore, it is crucial for corporations to have strong governance frameworks that can prevent, detect, and rectify fraudulent activities.