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

Author

Listed:
  • 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)

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.

Suggested Citation

  • Flávia Cruz Souza Murcia & Fernando Dal-Ri Murcia & Elisete Dahmer Pfitscher, 2017. "Playing with financial weapons of mass destruction: the derivatives loss of Sadia," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 14(2), pages 173-189, May.
    • Handle: RePEc:pal:ijodag:v:14:y:2017:i:2:d:10.1057_s41310-017-0019-6
    DOI: 10.1057/s41310-017-0019-6
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    References listed on IDEAS

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    1. Gary K Meek & Clare B Roberts & Sidney J Gray, 1995. "Factors Influencing Voluntary Annual Report Disclosures By U.S., U.K. and Continental European Multinational Corporations," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 26(3), pages 555-572, September.
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    Cited by:

    1. Jorge Feregrino & Juan Felipe Espinosa-Cristia & Nelson Lay & Luis Leyton, 2022. "Inappropriate Corporate Strategies: Latin American Companies That Increase Their Value by Short-Term Liabilities," IJFS, MDPI, vol. 10(4), pages 1-15, October.

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    Keywords

    Sadia; Brazil; derivatives;
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