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Quantifying reputational effects for publicly traded financial institutions

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    Abstract

    This paper aims to measure reputational effects for financial institutions by examining a firm‟s stock price reaction to the announcement of particular operational loss events such as internal frauds. For this purpose we conduct an event study analysis of the impact of operational loss events on the market values of banks and insurance companies, using the OpVar database (OpData® dataset supplied by OpVantage®). This analysis concerns a number of publicly reported banking and insurance operational risk events affecting publicly traded U.S. or European institutions from 2000 to 2006 that caused operational losses of at least U.S.$20 million – a total of 20 bank and insurance company events. We estimate for these institutions the cumulative abnormal returns and find that stock prices react immediately and negatively to announcements of operational losses due to internal frauds. We conclude our analysis by estimating the „reputational value-at-risk‟ at a given confidence level, which represents the economic capital needed to cover reputational losses over a specified holding period with a specific confidence level.

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    Bibliographic Info

    Article provided by Capco Institute in its journal Journal of Financial Transformation.

    Volume (Year): 27 (2009)
    Issue (Month): ()
    Pages: 76-81

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    Handle: RePEc:ris:jofitr:1388

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    Related research

    Keywords: Reputational risk; financial institutions;

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    Cited by:
    1. Jose Manuel Feria-Dominguez & Enrique Jimenez-Rodriguez & Ines Merino Fernandez-Galiano, 2013. "Isolating the corporate reputational risk in environmental oil spill disasters," Working Papers 13.02, Universidad Pablo de Olavide, Department of Financial Economics and Accounting (former Department of Business Administration).

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