Effects of Corporate Fraud on the Value Relevance of Brazilian Publicly-Held Companies
Keywords:Corporate Fraud, Relevance of Accounting Information, Quality of Accounting Information
Purpose: Relevant accounting information is that capable of influencing the decision making of a given user. However, if the information generated comes from fraudulent reports, it loses its relevance, that is, it is no longer useful for a decision maker. Therefore, this study aims to verify the relationship between fraud indicators and the relevance of accounting information in Brazilian publicly traded companies.
Method: For this purpose, the study used a sample composed of 126 publicly traded companies listed on B3, from 2011 to 2020, whether or not they were involved in different situations that indicate fraud. For the analysis of this interaction, the econometric model of value relevance, proposed by Collins, Maydew and Weiss (1997), was used, which complemented the model initially developed by Ohlson (1995).
Results: The results pointed to the understanding that companies that were indicated as "fraudulent" tend to lose the relevance of their accounting information, with emphasis on the relevance of the information of their equity before the capital market, which started to have “inverse relevance” of your information, as it presents the opposite signal to that obtained before interacting with the fraud proxy.
Objective: To verify the relationship between signs of corporate fraud and the relevance of accounting information in Brazilian publicly-held companies.
Method: A sample of 126 publicly traded companies listed on the B3 was used, from 2011 to 2020, whether they were involved in different situations that indicate fraud. Fraud was measured by a dummy variable that aimed to capture whether the company was involved in a case of fraud reported in the media or by the existence of a sanctioning administrative process. To analyze this interaction, the econometric model of value relevance, proposed by Collins et al. (1997), complemented Ohlson's model (1995).
Results: Generally, the results denote that profit and equity are relevant to their information. However, when analyzing companies with signs of fraud, the loss of relevance of net income is observed, while the relevance of shareholders' equity started to have "inverse relevance" of its information, as it presented a negative sign.
Contributions: The findings contribute by highlighting the importance of considering the occurrence of corporate fraud when interpreting accounting information. The loss of relevance of net income may indicate questionable accounting practices, which undermines investor confidence and negatively affects the ability to assess the performance and value of companies. In addition, the "inverse relevance" of equity suggests that corporate fraud can distort the financial reality of companies, making accounting information less reliable and valuable for users.
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