The value relevance of the accounting fraud occurred at Via Varejo S.A.: an event study

Abstract

As of November 2019, Via Varejo S.A. initiated an independent internal investigation whose conclusion indicated the occurrence of accounting fraud and errors with an impact on the financial statements of that year of R$ 1.19 billion. Throughout the investigation, information about Via Varejo S.A. and its former parent company - Cia Brasileira de Distribuição - was disclosed to the market. The objective of this paper is, precisely, to verify the value relevance of this information pertinent to the accounting fraud occurred in Via Varejo S.A. To this end, a event study of the return of the shares of the companies involved, namely Via Varejo S.A. and Cia Brasileira de Distribuição, was undertaken on the dates of disclosure of the information pertinent to the accounting fraud under analysis. The results point to several abnormal returns on the assets under analysis in the event windows, indicating the relevance of the disclosure of information related to accounting fraud that occurred in Via Varejo S.A.. As predicted, in the shares of Cia Brasileira de Distribuição the negative abnormal returns predominated. On the other hand, in the shares of Via Varejo S.A., positive abnormal returns predominated, despite signs of an uncertain initial reaction from market agents. The unexpected result regarding the return of Via Varejo S.A.'s shares may result from an interpretation of the market in the sense that the way in which accounting fraud was unveiled by Via Varejo S.A. represents an improvement in its corporate governance mechanisms.