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Operational risk and reputation in the financial industry

Author

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  • Roland Gillet

    (PRISM Sorbonne - Pôle de recherche interdisciplinaire en sciences du management - UP1 - Université Paris 1 Panthéon-Sorbonne)

  • Georges Hübner
  • Séverine Plunus

Abstract

By examining stock market reactions to the announcement of operational losses by financial companies, this paper attempts to disentangle operational losses from reputational damage. Our analysis deals with 154 events coming from the FIRST database of OpVantage. Events occurred between 1990 and 2004 in companies belonging to the financial sector and that are listed on the major European and US Stock Exchanges. Results show significant, negative abnormal returns at the announcement date of the loss, along with an increase in the volumes of trade. In cases of internal fraud, the loss in market value is greater that the operational loss amount announced, which is interpreted as a sign of reputational damage. Negative impact is proportionally greater when the loss amount represents a larger share in the company's net profit.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Roland Gillet & Georges Hübner & Séverine Plunus, 2010. "Operational risk and reputation in the financial industry," Post-Print hal-03712703, HAL.
    • Handle: RePEc:hal:journl:hal-03712703
    DOI: 10.1016/j.jbankfin.2009.07.020
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