Reputational Losses and Operational Risk in Banking
University of Rome III, Italy; Washington University, Saint Louis - Olin Business School
University of Parma
University of Rome (Tor Vergata)
March 9, 2011
Reputation is a key asset for any company whose affairs are based on trust like banks. Despite its importance, the number of studies dealing with reputational risk in financial industry is still limited. We estimate the reputational impact of announced operational losses for a large sample of financial companies in Europe and in the U.S. between 1994 and 2008. By running an event study, we show that substantial reputational losses occur following announcements of “pure” operational losses. We provide evidence that “fraud” is the event type that generates the most reputational damage. “Trading and sales" and “payment and settlement” are the two business lines determining crucial reputational losses. We also find that reputational losses are higher in Europe than in North America.
Number of Pages in PDF File: 44working papers series
Date posted: March 10, 2011
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