Ownership Concentration and the Information Content of Operational Loss Announcements

Abstract

We investigate information transfer effects of operational loss announcements to the announcing firm’s blockholder. Based on an event study, we find that the firm-blockholder link tends to be weak for U.S. financial sector blockholders, with significant negative spillover effects occurring mainly for larger blockholders, for blockholders incorporated as depository institutions with a higher exposure to the respective loss announcing firm, and for higher operational loss amounts. Our findings contribute to the understanding of the equity pricing process in the presence of operational risk, and they show that operational risk is not entirely idiosyncratic but may bear a considerable contagious element.

Keywords: Blockholder, Information Transfer, Operational Risk, Financial Industry

JEL Classification: G14, G20, G32