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Playing with financial weapons of mass destruction: the derivatives loss of Sadia

Flávia Cruz Souza Murcia (), Fernando Dal-Ri Murcia () and Elisete Dahmer Pfitscher ()
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Flávia Cruz Souza Murcia: Federal University of Santa Catarina
Fernando Dal-Ri Murcia: University of São Paulo
Elisete Dahmer Pfitscher: Federal University of Santa Catarina

International Journal of Disclosure and Governance, 2017, vol. 14, issue 2, 173-189

Abstract: Abstract This article analyzes the case of Sadia, a Brazilian company that posted a net loss of approximately US$ 1 billion in 2008, Sadia's first annual loss in its 64-year history. For this, we use public information available about the case, which includes financial statements, notices of material events and the administrative trial conducted by the Brazilian Exchange Commission, which found nine Board Members guilty of failing in their duty as company administrators. Our analyses show that the following causes contributed to the derivatives loss: (1) the CFO reported directly to the Board of the Directors, and not to the CEO, (2) the Board of Directors did not know which areas were responsible for controlling risk in the derivatives transactions, (3) risk control monitoring systems were inefficient, (4) the company was operating as a “bank,” and (5) under BR GAAP, derivatives financial instruments were treated as off-balance sheet items.

Keywords: Sadia; Brazil; derivatives (search for similar items in EconPapers)
Date: 2017
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