Derivatives and Financial Crisis: The Costs of Speculation in Brazil (Aracruz and Sadia)

14 Pages Posted: 7 Sep 2012

See all articles by Luiz C. J. Perera

Luiz C. J. Perera

Mackenzie Presbyterian University

Carlos dos Reis Neto

Mackenzie Presbyterian University

Cavalcanti Alves

Mackenzie Presbyterian University

Roberto Borges Kerr

Mackenzie Presbyterian University

Date Written: October 7, 2011

Abstract

This study aimed to verify the speculation costs incurred by Aracruz and Sadia due to their high degree of leverage with derivative instruments. The main results evidenced agency problems, with disproportionate investments in hedge transactions. Faced with a sudden appreciation of the US dollar, resulting from the exacerbation of the global financial crisis, the firms took heavy financial losses of R$ 4.7 billion reais for Aracruz and R$ 2.6 billions for Sadia. Investors witnessed Sadia and Aracruz shares end 2008 down about 70% against 28% of the market index.

Keywords: Financial crisis, Derivatives, Discounted Cash Flows (DCF), Valuation, Aracruz, Sadia

JEL Classification: G01, G15, G23, G32

Suggested Citation

Perera, Luiz Carlos Jacob and Reis Neto, Carlos dos and Alves, Ricardo Cavalcanti and Kerr, Roberto Borges, Derivatives and Financial Crisis: The Costs of Speculation in Brazil (Aracruz and Sadia) (October 7, 2011). Available at SSRN: https://ssrn.com/abstract=2142870 or http://dx.doi.org/10.2139/ssrn.2142870

Luiz Carlos Jacob Perera (Contact Author)

Mackenzie Presbyterian University ( email )

Rua da Consolação 896
São Paulo, São Paulo 010302907
Brazil
+55.11.21148273 (Phone)
+5511.21148836 (Fax)

HOME PAGE: http://www.jperera.pro.br

Carlos dos Reis Neto

Mackenzie Presbyterian University ( email )

Rua da Consolação 920
São Paulo, 010302907
Brazil

Ricardo Cavalcanti Alves

Mackenzie Presbyterian University ( email )

Rua da Consolação 920
São Paulo, 010302907
Brazil

Roberto Borges Kerr

Mackenzie Presbyterian University ( email )

Rua da Consolação 920
São Paulo, 010302907
Brazil

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