Reputational damage of operational loss on the bond market: Evidence from the financial industry
AbstractWe examine bond market reactions to the announcement of operational losses by financial companies. Thanks to the fact the corporate debt is senior to equity, we interpret the cumulated abnormal returns on the bond market of the companies having suffered those losses as a pure reputational impact of operational loss announcements. For a given operational loss, bond returns might be affected at up to three different periods: at the first press release date, when the company recognizes the loss itself and at the settlement date. These impacts hold stronger than for common stocks. We also study the effect of investors' knowledge of the loss amount, and show that the type of operational event and the proportion of the loss in the firm's market value influence the effect of the loss announcement. Cross-sectional analysis indicates that the abnormal return is mostly affected by market-based characteristics for the first press release date, while firm-related characteristics largely affect bond returns upon loss recognition.
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Bibliographic InfoArticle provided by Elsevier in its journal International Review of Financial Analysis.
Volume (Year): 24 (2012)
Issue (Month): C ()
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Web page: http://www.elsevier.com/locate/inca/620166
Operational risk; Reputational risk; Corporate bonds; Event study;
Other versions of this item:
- Séverine Plunus & Roland Gillet & Georges Hübner, 2012. "Reputational damage of operational loss on the bond market: Evidence from the financial industry," ULB Institutional Repository 2013/142649, ULB -- Universite Libre de Bruxelles.
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
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- Ingo Walter, 2013. "The value of reputational capital and risk in banking and finance," International Journal of Banking, Accounting and Finance, Inderscience Enterprises Ltd, vol. 5(1/2), pages 205-219.
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