Banca de DEFESA: Monize Ramos do Nascimento

CORPORATE FRAUD: FROM PUNISHING THE OFFENDER TO PRESERVING BUSINESS ACTIVITY

Corporate Fraud, Cost-benefit of Fraud, Deterrence of Fraud

The present study aimed to analyze the cost-benefit of corporate fraud in Brazilian companies, with specific objectives: (i) to test if fraudulent companies gain economic advantage compared to nonfraudulent companies, and (ii) to analyze the characteristics of penalties imposed by the CVM on fraudulent Brazilian companies. Studying this subject in emerging market countries or those undergoing economic transition, such as Brazil, is particularly relevant, with the potential to reveal distinct findings due to these capital markets having immature security and weak legal protection for investors. Additionally, there is a continuous change in the institutions that provide them with an opportunity to engage in misconduct, especially in the face of a legal environment and supervision system that are relatively weaker than those in a developed country. To achieve the proposed objective, tests were conducted in two stages, the first with three distinct samples of non-financial companies listed on B3: (i) sample of fraudulent companies; (ii) sample of matched companies, and (iii) sample of all companies. The study period was from 1996 to 2022. The analysis was performed using graphs, multiple linear regression, and qualitative analysis. The results demonstrate that fraudulent companies perform better post-fraud and generally outperform non-fraudulent companies, and that the applied penalties are not in line with the Penalty Theory. This makes the benefit of fraud outweigh its cost in Brazil and consequently makes it rationally viable.