Business Students Expectations of Brazilian Corporate Governance: Insights for a Sustainable Path in an Emerging Business Environment

Abstract

This paper aimed to better understand business students’ expectations of Brazilian corporate governance after recent scandals, focusing on capturing their perceptions after the Lava Jato (Car Wash) police investigation. Adapting a prior survey applied to business students, data were collected from three colleges in São Paulo, the largest city in Latin America, with a total of 328 responses. The data were initially submitted to confirmatory factor analysis (CFA), after which we employed a structural equation model (SEM). Our main finding indicates that students are skeptical of an increase in Brazilian corporate governance after this police operation. This result is supported by the prior literature and denotes student consciousness of the need for deep reforms in the business environment and compliance rules. Furthermore, strategic human resources management is the most prominent corporate governance tool today, and the survey revealed disbelief that the Board of Directors and internal audits will act as potential inhibitors of fraud and corruption. These findings are associated with a broad view related to sustainability which denotes that future firm leaders, who are currently business students, comprehend that an ethical business environment needs to be built by professionals who are able to understand the role of corporate governance mechanisms. This paper contributes to the literature by offering a holistic assessment of business student perceptions and encourages a discussion of current models and instruments of Brazilian corporate governance. The scarcity of studies involving education and governance can be considered a constraint to building sustainable companies from a long-term perspective. Comprehending business students’ perceptions about corporate governance mechanisms can be considered a path to increasing the number of business courses with topics aligned with practical effects on environmental, social, and governance subjects, mainly when these mechanisms are evaluated from an integrated perspective.

1. Introduction

Since the agency problem was formalized [1], following prior proposals [2], the body of knowledge known as corporate governance has achieved a substantial scale focused on the management practices of organizations. In a modernistic way, corporate governance has been oriented towards guaranteeing the well-being of all organization stakeholders and not only their shareholders [3].

However, studies systematizing the teaching of corporate governance for business students are still rare and incipient, with some outstanding examples [4,5,6,7].

The scarcity of studies involving education and governance is likely due to the fact that corporate governance researchers are focused on papers that aim to answer how to assure investor returns despite agency conflicts. Within this scope, a considerable amount of targeted research is expected for market agents and corporations. However, some authors [6] pointed out that teaching the concepts and fundamentals of corporate governance, especially to business students, is an excellent opportunity to instill in future leaders a knowledge of ethics, integrity, competence, and professional accountability.

This discussion has gained prominence from the perspective of the current moral–ethical crisis faced by public–private relationships in Brazil, which has earned more media coverage with the beginning and development of the Lava Jato (Car Wash) police investigation.

Within this context, this study is supported by the literature [4,6,7,8,9,10,11] and aimed to evaluate the following research question: Are the expectations of business students about the effects of the Lava Jato police investigation of Brazilian corporate governance practices positive?

Corporate governance plays a major role in building a more sustainable world. According to [12], corporate governance is a fundamental pillar that leads to practical effects on environmental, social, and governance subjects. Furthermore, we decided to focus on business students due to their involvement in matters related to such topics and because today’s business students will be the corporate leaders of the future [7].

To achieve these goals, we conducted a survey formulated by [9] and complemented by [7] and added specific questions about student expectations regarding governance practices in post-Lava Jato Brazil.

A total of 328 responses were collected from three universities located in the city of São Paulo. The data were initially submitted to confirmatory factor analysis (CFA) for the elaboration of the latent variables and used after we employed a structural equation model (SEM), which permitted the simultaneous evaluation of the corporate governance mechanisms.

The main results indicate that these students have a good understanding of the relevance of corporate governance to their careers, and they also agree that this topic matters in the development of sustainable business.

However, traditional corporate governance mechanisms such as the Board of Directors and internal audits were interpreted as ineffective in inhibiting manager misconduct. Regarding the central evaluation of this study, it was verified that the surveyed students are skeptical about the potential improvements in corporate governance practices after the Lava Jato police investigation. These results potentially indicate that the surveyed business students understand that broader reforms in the Brazilian corporate environment will not necessarily come from the fact that there is an ongoing police investigation.

Our research design approaches differ from prior ones, e.g., [7,11], since we employed a multivariate analysis and studied an emerging economy that has suffered from private and public corruption.

Despite the sustainability theme having gained momentum with the guidelines related to the dimensions that make up the acronym ESG (environment, social, and governance), more specifically in the last two years, e.g., [13,14,15], it is necessary to recall that every discussion that turns to this theme is intrinsically dependent on action and ethical–moral commitment for its correct functioning, e.g., [16,17].

In this context, the corporate governance dimension, from the point of view of courses focused on the business area, is perhaps one of the most recurrent themes at the heart of the development of sustainable companies, at least from a management point of view, e.g., [14,18,19,20].

However, corporate governance practices can only be aligned with sustainable goals if there is a broad and full engagement of professionals who deal with the management of corporations. According to [21], managers and executives need to be fully committed to the functioning of the corporate governance system as a process since the proper functioning of the mechanisms that aim to guarantee good management effectively depends on the performance of the human dimension.

Therefore, it is conceivable that the in-depth study and understanding of how business students and related courses understand the central concepts of corporate governance are some of the ways that the aims of creating more sustainable companies can be achieved more effectively, e.g., [7,9].

From this perspective, the Brazilian educational and business environments make up an interesting scenario to assess how business students understand attributes related to corporate governance, as Brazil is one of the largest emerging economies in the world, e.g., [22], but despite its relevant presence in the global economic scenario, it still faces serious problems with regard to corporate governance, such as the incidence of fraudulent practices and scandals involving firms and executives (please see the context of the Lava Jato operation in Section 3).

This paper contributes to the literature related to corporate governance and education, as it offers a holistic assessment of business student perceptions which stresses the importance of discussing current models of Brazilian corporate governance. Furthermore, our results indicate the need to discuss and teach corporate governance as soon as possible in terms of executive education, mainly to create a clear consciousness about how human ethical behavior can help firms to achieve their purpose and increase social well-being.

After the introduction, this article is divided into sections as follows: Section 3 presents the theoretical background where the main arguments are discussed and hypotheses are raised; Section 4 presents the methodological procedures adopted and the proposed theoretical model; Section 5 presents the CFA and the results of the regressed structural model; and Section 6 presents our conclusions.

2. Corporate Governance for Business Students and Sustainability

The topic of sustainability is intrinsically related to educational issues, and different studies have focused on demonstrating such inter-association, whether in environmental aspects, e.g., [23,24,25], in social aspects [26,27,28], or in topics related to corporate governance, e.g., [5,7,29]. Considering the focus of this work, we focused on elaborating a non-exhaustive review of works that have demonstrated the importance of formally and systematically incorporating the in-depth study of the discipline of corporate governance into business courses, so that students can infer the importance of ethical attributes in business decision making, and that take into account the environmental and social dimensions that are affected by organizational initiatives.

Corporate governance (CG) has become a prominent topic in the capital markets and academic discussions. In [30], the following reasons for this were pointed out: (i) a worldwide wave of privatization; (ii) pension fund reform and the growth of private savings; (iii) the takeover wave of the 1980s; (iv) deregulation and integration of capital markets; (v) the 1998 East Asian crisis, which put a spotlight on corporate governance in emerging markets such as Russia and Brazil; and (vi) a series of American corporate scandals such as Enron and WorldCom. In addition to these reasons, [31] added the global financial crisis of 2008. In [6], the authors studied the importance of CG and ethics education in an accounting curriculum. According to the authors’ point of view, corporate governance has a significant impact on academia and the capital markets. However, this topic has been rarely debated in terms of education.

Within this context, [32] mentioned past failures of gatekeepers and pointed out the relevance of teaching corporate governance to students using real cases.

Furthermore, [6] mentioned that CG is an essential concept for preparing future business leaders in terms of integrity, competency, and accountability. The authors of [7] mentioned the relevance of corporate governance education, citing US Treasury Department recommendations that business schools and accounting programs should include this topic in their curriculum [33].

According to Global Quality and Distinction in Business Education [34], an international resource with 500 accredited business schools, only 8 percent of these institutions have corporate governance in their curriculum as an individual discipline. In [7], using a survey applied to business students in two American universities, the authors identified that business students attribute relative importance to corporate governance practices.

The survey was initially developed by [9], who applied it to experienced professionals of state-owned enterprises in Thailand. They divided CG into six mechanisms considered important by the managers: the Board of Directors (BD), internal audits (IAs), information technology (IT), internal controls (ICs), strategic human resources management (HRM), and risk management (RM). Moreover, [7] found that American business students understand HRM to be an essential practice of corporate governance, which follows RM, ICs, BD, IT, and IAs in terms of importance. On the other hand, the results of the perceptions of the experienced professionals surveyed by [9] put them in the following order: HRM, IT, BD, RM, IAs, and ICs.

In relation to corporate governance, business education, and sustainability, [35] stated that corporations who are increasingly focusing on shareholders beyond the bottom line must be focused on teaching corporate social responsibility (CSR) in the classroom. The authors of [36] corroborate such aspects by reporting findings from a survey of CSR education in Europe. According to these authors, despite the particular efforts to teach CSR to business students by some professors, the main findings indicated a need to incorporate more institutional factors, such as including this topic formally in the business courses, to enlarge the effects of these teachings in practice. In [37], the authors reported an indirect social pressure for business schools to incorporate topics related to corporate governance into their curricula from an ethical and moral perspective, which allows future business leaders to deal with the management of their organization in a way that considers all externalities generated by its activities. However, the authors also reported that business schools have ambiguously dealt with such educational demands, indicating the perception of deficiencies in the conduct of disciplines that depend on a broad ethical discussion, such as corporate governance. In [29], the authors mentioned that several ethics scandals, rising inequality, and the detrimental effects of climate change dramatically underscore the need for business schools to instill a commitment to social purpose in their students. The authors also mentioned that business courses must recover a critical purpose since the focus of firms’ activities has moved to a larger purpose than only remunerating shareholders.

In this way, the integration of the study of corporate governance in business courses becomes an important activity to achieve sustainable means of business management. It is unthinkable to conjecture the achievement of sustainability goals without establishing subjects in business courses that aim to discuss the ethical character of business activities, especially in jurisdictions that have been overwhelmed by corporate fraud and scandals.

Deepening the study of corporate governance for students of business-related courses can also contribute to the adaptation of technologies that allow organizations to structure governance mechanisms that are more effective in their purposes. In [38], the authors pointed out that companies are becoming more skilled in the development, adoption, and adaptation of technologies in their processes and businesses; thus, the inclusion of discussions related to corporate governance with the complement of technology tools could help to increase the robustness of corporate control systems that lead to effective governance practices.

3. Contextualization of the Lava Jato Investigation and Hypothesis Development

Due to the nature of these events and the incipient academic literature related to them, this section was elaborated primarily based on news stories published in renowned newspapers.

The Lava Jato police investigation was initiated in 2014, beginning with the discovery of money laundering at gas stations and a car wash, hence the name. However, what started as a small business investigation turned into the biggest corruption scandal in Brazil’s history and one of the largest in the world [39].

Doleiros (prohibited currency dealers) who were involved in money laundering also took part in corruption schemes with executives from the largest company in Latin America—Petrobras.

Petrobras is a state-owned oil and gas company that had the highest market value in Latin America and is the flagship of the Brazilian economy. It is known for a significant oil discovery this century and accounts for more than one-eighth of all investments in Brazil [40].

According to the investigation, the company’s directors signed inflated contracts for properties, plants, and equipment. This scheme increased the value of these contracts by 1 to 5% to enrich the company’s directors and politicians and maintain the ruling government coalition [41].

Table 1. The chronology of the Lava Jato investigation.

Dates	Events
17 March 2014	The police arrested 17 people, including Paulo Roberto Costa, Director of Refining and Supply at Petrobras.
14 November 2014	Federal police launch a new phase of the investigation, involving searches of large suppliers such as Camargo Correa, OAS, Odebrecht, and seven other companies.
6 March 2015	The Federal Supreme Court authorizes the investigation of 12 senators and 22 representatives for corruption.
19 June 2015	The powerful businessman Marcelo Odebrecht is arrested. He is later sentenced to 19 years and 4 months in prison.
3 August 2015	José Dirceu, the Chief of Staff of ex-President Luiz Inácio Lula da Silva, is detained. The following year, he receives two prison sentences, one for 23 years and 3 months and the other for 11 years.
25 November 2015	Labor Party (PT) Senator Delcídio do Amaral is detained for obstructing the investigation. Amaral decides to confess and implicates President Dilma Rousseff and ex-President Lula in the scheme.
10 March 2016	Lula is indicted in São Paulo for money laundering and concealment of assets.
22 March 2016	Investigators find a system of “professional” corruption in Odebrecht based on the payment of bribes.
12 May 2016	Rousseff is impeached for manipulating public accounts and economic indicators in a separate case. Vice President Michel Temer takes office as Acting President.
23 May 2016	Romero Jucá has to leave the Ministry of Planning hours after Folha de São Paulo publishes a recording in which he suggests to contain the Lava Jato investigation.
15 June 2016	Temer is implicated in the plot by Sérgio Machado, the ex-President of Transpetro, a Petrobras subsidiary.
31 August 2016	Dilma is convicted by the Senate. Temer becomes president.
26 September 2016	The police arrest Antonio Palocci, ex-Finance Minister and Chief of Staff of Rousseff.
19 October 2016	Former Representative Eduardo Cunha, who was instrumental in Rousseff’s impeachment, is arrested for corruption. At the end of March 2017, he is sentenced to 15 years and 4 months in prison for corruption.
19 January 2017	Judge Teori Zavascki, in charge of the Lava Jato investigation, dies in a small plane crash.
30 January 2017	Eike Batista, who was the richest man in Brazil, is arrested as the Petrobras case unfolds.
16 February 2017	Prosecutors from 11 countries announce that they will investigate Odebrecht’s crimes in coordination with Brazil.
14 March 2017	Attorney General Rodrigo Janot calls for the opening of 83 investigations against politicians with legislative immunity based on the confessions of former Odebrecht executives.
11 April 2017	The Federal Supreme Court agrees to open investigations into eight ministers of President Temer’s administration. The case also includes 29 senators, at least 40 representatives, and 3 governors.

Source: This table was built using news from newspapers, e.g., [40,41,42].

summarizes the main events of this investigation beginning in 2014. It is important to mention that, as of 2019, the Lava Jato operation was still underway.

The Lava Jato investigation has been a milestone in Brazilian history with more than BRL 2 billion paid by Petrobras in bribes. One construction company alone—Odebrecht—spent roughly BRL 3.3 billion in bribes. More than 1000 politicians were associated with the corruption involving JBS. Sixteen companies were identified as being involved with corruption as well as 50 congressional representatives. Four former presidents were investigated and many politicians, as well as business people, have been imprisoned [41,42].

However, political problems remain far from being entirely resolved; there are many politicians cited in recordings that remain in power after the main events, including Temer [39].

It is important to highlight that corporate governance is a unique topic principally for emerging markets such as Brazil because, according to [43], better corporate governance systems in emerging economies will promote greater access to financing, lower costs of capital, better performance, and more favorable treatment for all stakeholders.

Furthermore, following the approach of [32], which was employed to dissect the Enron crisis in the US stock market, we need to understand how Brazilian gatekeepers failed along with other corporate governance mechanisms in preventing corporate fraud.

In this way, we understand that corporate governance education for Brazilian business students is of primary importance in this debate for the same reasons mentioned by [6], and the current business environment, despite its criticism, is a window of opportunity for conducting a deep discussion about the effectiveness of corporate governance mechanisms in Brazil.

Hypothesis Development

Considering the relevance of the systematic study of corporate governance to achieve sustainable development goals, as well as the fact that the Lava Jato police operation exposes weaknesses in the governance model of relevant Brazilian companies, the premises and hypotheses developed by [9] and [7] were adapted to capture the perspectives of Brazilian students of business, and related areas, both regarding the mechanisms of corporate governance and the potential changes that may come from the police operation highlighted. The authors of [44] studied how firms have used information technology (IT) as support for enterprise risk management (ERM). According to the authors, IT provides ERM with an integrated governance tool that expands internal controls (ICs), risk management (RM), and internal audits (IAs).

Regarding the Board of Directors (BD), [45], p. 93 argued that the “Boards of Directors are beginning to look beyond the accounting roots of IT governance toward the risk of legal liability and harm to product brand and corporate reputation.” The authors of [46] indicated that the BD plays an important role in IT investments that monitor the returns of its projects.

According to [7], American business students listed IT as a primary corporate governance instrument that is less relevant than other mechanisms such as risk management and internal controls.

Given these perspectives, we propose the following hypothesis:

Hypothesis 1 (H1).

The greater the understanding of the relevance of information technology (IT) in a business model, the greater the subsequent comprehension of the relevance of the Board of Directors (BD), internal audits (IAs), internal controls (ICs), and risk management (RM) to corporate governance.

Regarding internal audits, specifically, the findings of [47] indicate that the quality of this CG mechanism increases after management misconduct. This result is likely aligned with the Brazilian business environment because companies such as Petrobras reinforced their internal audit reports after the Lava Jato investigation to mitigate future fraud.

Although authors such as [11] and [47] highlight the relevance of IAs within the context of Sarbanes–Oxley, many Brazilian firms involved in Lava Jato have reported internal audits as a CG tool in their public reports. From this context, it is possible to propose a second hypothesis:

Hypothesis 2 (H2).

The greater the relevance attributed to internal audits (IAs), the less self-declared knowledge of corporate governance (SKCG).

The relationship between internal controls and corporate governance has been studied by several authors, e.g., [8,46,48,49]. These authors argue that ICs since the Sarbanes–Oxley Act have been efficient in monitoring manager actions. The authors of [7] found that ICs play a major role in the CG system based on American business student perceptions. Based on this line of argument, we propose our third hypothesis:

Hypothesis 3 (H3).

The higher the relevance attributed to internal control (IC), the more self-declared knowledge of corporate governance (SKCG).

The Board of Directors (BD) is responsible for ensuring that the management body pursues ways to optimize the stakeholder interests [7,50]. In [8,51], the authors have discussed the best strategy to increase the effectiveness of the BD’s performance.

However, ref. [9], p. 618 mentioned that: “the failure of Boards of Directors at Enron and WorldCom highlight the need for more appropriate instruments to prevent misconduct by the Board of Directors.” The authors of [32] commented that one of the causes of the American stock market crisis of 2001/2002 was that the Boards of Directors did not have the independence to supervise manager misconduct.

The argument presented by [9,32] is in keeping with the Brazilian environment as demonstrated by the Lava Jato investigation. The largest Brazilian public company, Petrobras, had a Board of Directors made up of politicians recommended by the Minister of Economics, who did not necessarily have the technical knowledge necessary to carry out the activities required of them as board members.

Within this context, we present our fourth hypothesis:

Hypothesis 4 (H4).

The greater the relevance attributed to the Board of Directors (BD), the less self-declared knowledge of corporate governance (SKCG).

In [52], using a database of Belgian firms, the authors identified that audit fees are lower when a company discloses a relatively high level of compliance risk management (RM). In [53], the authors mentioned that RM helps companies make the deployment of ICs transparent and visible, and he believed that RM and CG are interdependent.

Business students are taught to understand the importance of risk management in company business models. In [54], p. 16 established that: “Risk management is a scientific approach to dealing with risks by anticipating possible losses and designing and implementing procedures that minimize the occurrence of losses or the financial impact of the losses that do occur.”

We therefore propose our fifth hypothesis:

Hypothesis 5 (H5).

The greater the recognition of the importance of risk management (RM) activities, the better a company’s self-declared knowledge of corporate governance (SKCG).

The authors of [7] indicated that strategic human resources management (SHRM) was recently added as a critical element of CG studies. In [55], the authors offered a framework to incorporate HRM in CG systems that aims to increase its effectiveness in the allocation of team members in the right positions. In [7], the authors have also verified that HRM was the most critical element of CG regarding the percentage of total variance according to American business students. This is a very interesting result because [54] described two main methodologies for dealing with risk in a broad sense, one way being termed the engineering approach and the other being aligned with HRM.

Hence, we propose our sixth hypothesis:

Hypothesis 6 (H6).

The greater the relevance attributed to strategic human resources management (HRM), the better a company’s self-declared knowledge of corporate governance (SKCG).

The most relevant interaction between the latent variables in this study is the association between the self-declared knowledge of corporate governance (SKCG), and a construct specifically designed for this study called corporate governance expectations after Lava Jato (CGECW).

The relative importance of corporate governance, here denoted as SKCG, was developed by [7] to assess the perceptions of business students regarding CG in their professional careers. The questions were formulated in a general way to arrive at the surveyed students’ self-declaration about the relevance and their beliefs in regard to CG.

We adapted the questions provided by [7] and created the latent variable SKCG. Our main aim was to assess the link between this variable and BD, IAs, ICs, HRM, and RM. Furthermore, we developed 25 new questions as proxies for student expectations of Brazilian corporate governance after the Lava Jato investigation (CGECW).

In spite of the relevance of CG which is praised by the literature, e.g., [7,8,11,46,47,48,49], it was expected that business students do not have positive expectations of Brazilian corporate governance after Lava Jato.

According to [3], corporate governance is not vague jargon used only by firms to emphasize their management activities. Jacoby [3] pointed out that corporate governance is a set of actions that must be in line with the interests of society, and only through this path can it be legitimated by stakeholders including students.

Considering this background, we propose our seventh hypothesis:

Hypothesis 7 (H7).

The greater the self-declared knowledge of corporate governance (SKCG), the lower the corporate governance expectations will be after the Lava Jato investigation (CGECW).

It is worth noting that the prior works mentioned in this section, e.g., [3,7] assessed business students’ perceptions of corporate governance from a univariate statistical approach. In our paper, we explored a multivariate analysis applying structural equation models (SEMs), as well as considering the Brazilian business environment, which has been strongly affected by police operations in recent years. For this reason, we had to adapt prior surveys to also capture the students’ perceptions related to their expectations about corporate governance in Brazil after the recent scandals.

4. Methodology

Figure 1 shows the complete research design employed to obtain the sample and to identify the main questions to be used in the structural equation modeling (SEM) through confirmatory factorial analysis (CFA).

Business students were recruited from three colleges in the city of São Paulo, Brazil, giving us a total of 328 respondents, as presented in

Table 2. Profiles of the participants.

Major/Professional Experience	without	≤1 Year	<1 ≤ 3 Years	<3 ≤ 5 Years	>5 Years	Total
# Accounting Students	4	10	36	8	20	78
% Accounting Students	5%	13%	46%	10%	26%	100%
# Actuarial Students	6	10	6	2	10	34
% Actuarial Students	18%	29%	18%	6%	29%	100%
# Business Students	5	20	34	11	35	105
% Business Students	5%	19%	32%	10%	33%	100%
# Economics Students	3	24	29	31	24	111
% Economics Students	3%	22%	26%	28%	22%	100%
# Total	10	20	42	10	30	328
% Total	3%	6%	13%	3%	9%	100%

. The curriculum for business degrees is also oriented towards risk management, internal and external audits, and internal controls, among other skills indicated in the literature, e.g., [6,7,9,11].

Even though they were considered students in different years, care was taken to only select groups that had already had the opportunity to study the discipline of corporate governance or topics with an equivalent curriculum load, for reasons related to the sample composition.

Although they were considered students in different years of training, the statistics presented in Table 2 show selected groups that had the opportunity to study the discipline of corporate governance.

Of the total amount of students, only three percent of the participants had no professional experience. Furthermore, unlike in other countries, business students in Brazil, in general, begin to work during their undergraduate degree, especially accounting and actuarial students.

4.1. Constructs and Variables

The survey’s constructs make up eight question groups: Board of Directors (BD), strategic human resources management (HRM), internal audits (IAs), internal controls (ICs), information technology (IT), risk management (RM), self-declared knowledge of corporate governance (SKCG), and corporate governance expectations after the Lava Jato investigation (CGECW).

Table 3. Constructs of the proposed structural model.

Constructs	Definition	# of Indicators	Literature References
BD	Higher scores indicate greater expectations in terms of the role of the Board of Directors as a corporate governance tool	9	[7,9]
HRM	Higher scores indicate greater expectations about the role of strategic human resources management as a corporate governance tool	12
IAs	Higher scores indicate greater expectations about the role of internal audits as a corporate governance tool	5
ICs	Higher scores indicate greater expectations about the role of internal controls as a corporate governance tool	5
IT	Higher scores indicate greater expectations about the role of information technology as a corporate governance tool	10
RM	Higher scores indicate greater expectations about the role of risk management as a corporate governance tool	7
SKCG	Higher scores indicate greater self-declared knowledge about corporate governance and its role in successful companies	3
CGECW	Higher scores indicate greater expectations about Brazilian corporate governance after the Lava Jato investigation	25	Developed for this study

presents a brief description of the constructs and the number of questions employed to measure them.

For all of the questions, respondents were asked to input values from 1 to 5, with 1 meaning strongly disagree and 5 meaning strongly agree. The complete survey is presented in Appendix A.

4.2. Proposed Structural Equation Modeling

The authors of [7,9] assessed the CG mechanisms from a univariate statistical approach. Our research design considers all the mechanisms through structural equation modeling (SEM), as shown in Figure 2. The theoretical model is presented below in accordance with the previously proposed hypotheses.

According to [56], SEM permits simultaneous regressions of several interrelated equations. Through this procedure, it is possible to extract two sets of variables: latent and observable [57]. In [58], the authors mentioned that PLS-SEM is an instrumental technique for exploring questionnaires, with outputs related to latent variables that cannot be achieved using single procedures such as factor analysis.

Our estimation of SEM used partial least squares (PLS), and for this reason, it is commonly called PLS-SEM. The PLS algorithm is a sequence of regressions utilizing weighted vectors. The weighted vectors obtained at convergence satisfy fixed point equations [59].

4.3. Confirmatory Factor Analysis and Latent Variables

According to [58], CFA is a statistical procedure used to compose latent variables by clustering observed items. CFA also contributes to an evaluation of the reliability and validity of the constructs [60,61].

Aiming to reduce the number of degrees of freedom, and considering a factor load of 0.5 as mentioned by [58] as a reference for a good cluster fit, each CG mechanism is composed of three questions as illustrated in

Table 4. Questions remaining after confirmatory factor analysis (CFA).

Index	Questions
BD	Board of Directors
Q5.1	The Board of Directors should participate in strategic planning.
Q5.3	Members of the Board of Directors should have experience in relevant industries.
Q5.8	Members of the Board of Directors should exchange critical information and comments.
CGELJ	Corporate Governance Expectations After Lava Jato
Q11.6	There will be more indications of more qualified/experienced advisors.
Q11.15	Directors and officers will be less able to override the effects of internal controls regarding illegal practices.
Q11.18	Internal audits will be better able to identify and warn of possible illegal practices.
HRM	Strategic Human Resources Management
Q9.1	Organizations should align human resources with corporate strategy.
Q9.4	Organizations should align their personnel with their strategic business plan.
Q9.5	Organizations should align key employee performance indicators with departmental and organizational key performance indicators.
IA	Internal Audits
Q8.1	Internal auditors should provide recommendations to improve internal controls.
Q8.3	Organizations should emphasize risk-based audits.
Q8.4	Organizations should have adequate numbers of qualified internal auditors.
IC	Internal Controls
Q7.1	Organizations should communicate clearly-specified segregation of duties and authority.
Q7.4	Control activities should be realized in all departments.
Q7.5	Organizations should emphasize risk-based controls.
IT	Information Technology
Q10.4	Organizations should provide information technology to support risk management.
Q10.5	Organizations should provide information technology to support internal controls and audits.
Q10.7	Departments should collaborate in developing information technology applications.
RM	Risk Management
Q6.1	Organizations should align their risk management plan with corporate strategy.
Q6.2	Organizations should identify key risk indicators at the corporate level.
Q6.3	Organizations should pass along key risk indicators to relevant departments.
SKCG	Self-declared Knowledge of Corporate Governance
Q11.1 *	I understand the extent of the moral and ethical crisis that the Lava Jato investigation has revealed in the Brazilian private sector
Q4.2	I believe corporate governance is important to business.
Q4.3	I believe that understanding corporate governance concepts will help me in my career.

* This question was moved from CGECW to SKCG due to its self-declared idiosyncrasy.

.

The authors of [62] mentioned a simple logic related to the number of variables in structural equation modeling; the more variables there are, the larger the sample. For this reason, our model was reduced after the CFA using the factorial loads as criteria. Only the questions with factorial loads higher than 0.5 remained in our final SEM, as recommended by [63]. All the regressions were obtained through SmartPLS version 3, using the maximum likelihood method.

4.4. This Study’s Main Delimitation

The main delimitation of this study is based on the fact that it considered students solely from São Paulo city. Although São Paulo is the largest city in Latin America and the most relevant city to the Brazilian economy, it is worth highlighting that Brazil is a continental country and different regions can lead to different answers and factorial loans of our latent variables.

Aiming to mitigate such a sample effect, we collected students’ feedback from three different colleges, and we also considered different business courses (Accounting, Actuarial, Business, and Economics).

5. Results

In this section, we present the validation of the latent variables using confirmatory factor analysis (CFA), and the verification of the hypotheses through the structural equation model (SEM).

According to [11,64], the composite reliability (CR), average variance extracted (AVE), and Cronbach’s alpha (CA) are several of the main indicators of the latent variables’ validity and reliability (

Table 5. Latent variable reliability and validity.

Latent Variables	AVE	CA	CR
BD	0.687	0.707	0.728
CGECW	0.638	0.720	0.840
HRM	0.657	0.739	0.851
IAs	0.505	0.672	0.821
ICs	0.608	0.691	0.739
IT	0.611	0.758	0.859
RM	0.629	0.675	0.728
SKCG	0.540	0.710	0.798

).

According to the SEM employed by [63], the recommended values for these indicators are: AVE > 0.5, CA > 0.7, and CR > 0.7. In addition, CR must be higher than AVE.

The only measures which did not meet prior indications were IAs, ICs, and RM regarding Cronbach’s alpha (which was slightly lower than 0.7). However, all the other criteria (AVE, CR, and CR > AVE) were matched. As a result, it is possible to assert the reliability and validity of the latent variables.

Keeping a small number of questions, but with a significant factorial load, is recommended especially in cases where there is a minimally expressive sample size, as is the case of research involving surveys, mainly because this procedure reduces the loss of degrees of freedom, as well as having the power to inhibit greater problems of endogeny among the questions presented [58].

SEM

Figure 3 shows the estimated SEM. The values on the arrows denote the estimated parameters, and the values inside the circles denote the latent variables’ mean R-squared.

The standardized root mean squared residual (SRMR) is used to assess the average magnitude of the discrepancies between the expected and observed correlations; the Normed Fit Index (NFI) is a comparison of the model’s Chi² against a reference; the root mean squared residual covariance matrix (RMS_theta) is the correlation measure between the outer model residuals. All these measures were used to evaluate the model’s fit [63].

According to [65], the SRMR value must be less than 0.10, or less than 0.08 to be more conservative. The authors of [66] mentioned that the SRMR is a goodness of fit indicator that identifies model misspecifications. The calculated SRMR was 0.093.

Regarding the NFI, [67] indicated that the closer the NFI is to 1, the better the fit. The authors of [68] highlighted the values above 0.90 are acceptable. The calculated NFI was 0.918.

In [68], the authors also indicated that the RMS_theta should be close to zero. The value obtained was 0.071.

Table 6. Estimated parameters.

Path Modeling	Hypotheses	Expected Sign	Parameters	Standard Deviation
IT -> BD	H1	+	0.545 ***	0.084
IT -> IAs	H1	+	0.504 ***	0.088
IT -> ICs	H1	+	0.402 ***	0.087
IT -> RM	H1	+	0.580 ***	0.077
IAs -> SKCG	H2	−	−0.335 **	0.139
ICs -> SKCG	H3	+	0.040	0.113
BD -> SKCG	H4	−	−0.021	0.131
RM -> SKCG	H5	+	0.388 ***	0.155
HRM -> SKCG	H6	+	0.405 ***	0.132
SKCG -> CGECW	H7	−	−0.301 ***	0.106

p-value: ** p < 0.05, *** p < 0.01.

summarizes the main statistical outputs of the SEM regression.

As highlighted above, the corporate governance mechanisms were first analyzed from a univariate perspective [7,9]. However, in this study, these mechanisms were evaluated as corporate governance systems from an integrated perspective. This approach allowed a simultaneous evaluation of the latent IT variable versus the others.

In addition, based on this integrated assessment, it was possible to verify the relationship between the variables SKCG and CGECW.

From the results displayed in Table 6, it is not possible to reject H1. The results are positive and statistically significant for all paths, being more prominent in the IT and RM relationships, with a value of 0.580 for the estimated parameter, significant at less than 1%. This finding is in line with the literature, e.g., [9,44,45]. This result can be understood as the attributed relevance of IT to the CG system.

In relation to H2, it is also not possible to reject this hypothesis due to its great statistical significance (less than 5%) and a parameter aligned with the expected sign (−0.335). This statistical finding corroborates the business students’ parsimonious view of the effectiveness of internal audits as a tool to mitigate misconduct.

The statistical results for H3 and H4 are not significant, and it is possible to reject both hypotheses, although the estimated coefficients are in line with the expected signs.

Furthermore, it is possible to accept H5 given that students attributed higher scores to both RM and SKCG. This finding is likely better understood by considering that risk management tools, such as ERM, are becoming alternatives for risk and fraud mitigation.

Regarding the relationship between SHRM and SKCG, it is not possible to reject H6, which achieved the most significant magnitude, indicating the relevance attributed by students to the role played by HRM.

Finally, the most significant evaluation of this study is that of H7, which proposes a negative relationship between SKCG and CGECW. The estimated parameter for this evaluation is negative and demonstrates a remarkably higher significance (−0.301 ***), which makes it possible to accept this hypothesis.

This result should not be understood as business students viewing corporate governance after Lava Jato with general disbelief. Likely, this finding indicates that the surveyed students understand the need to discuss this topic in depth and improve mechanisms to expand corporate governance in Brazil in accordance with local business practices.

In addition, the current lack of good political options to lead this country may have influenced these findings.

6. Conclusions

The primary purpose of this study was to evaluate the expectations of business students in terms of Brazilian corporate governance practices after the Lava Jato investigation.

To achieve these objectives, we adapted a questionnaire from the literature and applied it to students from three colleges in the city of Sao Paulo.

The statistical findings indicate that these students understand the importance of corporate governance for their careers and the development of corporate activities. Furthermore, they also understand the relevance of specific corporate governance mechanisms, emphasizing strategic human resources management and information technology.

However, in terms of their expectations of Brazilian corporate governance after the Lava Jato investigation, these business students do not expect improvement. This finding is supported by this study’s theoretical references.

Our results indicate that the development of disciplines and courses aimed at the in-depth study of the topic of corporate governance has the possibility of increasing the quality of professionals who will act in the future as managers and executives, especially in the sense of seeking decisions and ethical behavior that help organizations to build a sustainable future from the point of view of management practices.

However, it is important to recall that corporate governance mechanisms are instruments that depend on human interaction, so it is necessary that future business professionals and current students understand the dimensions, limits, and extensions of their responsibilities in the context of maintaining a governance system capable of achieving concrete purposes in improving practices and the business environment. It is worth remembering that firms are composed of people, and corporate governance is not a label that can be achieved without the professional engagement and comprehension to do so.

Furthermore, the deepening of corporate governance practices within the scope of undergraduate courses can help to reduce future expenses with training on aspects related to the theme. Likewise, it is expected that professionals endowed with a greater understanding of good business functioning in terms of controls can make more accurate decisions that help in the medium and long term to increase the value of organizations and social well-being.

It is envisaged that future research, endowed with greater resources, can expand the horizons and findings of this research by expanding the sample to other Brazilian states, as well as evaluating how regional issues can create specific business environments with lower propensity for specific types of mechanisms to enhance the corporate governance of local organizations.

Moreover, most of the respondents have already initiated their professional careers and likely still view the police investigation with skepticism. This result may indicate that they understand the need to implement broader and more complex reforms in both the public and private sectors.