Operational Risk and Reputation in the Financial Industry

Posted: 4 Mar 2007

See all articles by Roland L. Gillet

Roland L. Gillet

Université Paris I Panthéon-Sorbonne

Georges Hübner

HEC Liège

Severine Plunus

University of Liège - Department of Financial Management

Date Written: February 28, 2007

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.

Keywords: Operational risk, Reputational risk, Event study

JEL Classification: G14, G21

Suggested Citation

Gillet, Roland L. and Hübner, Georges and Plunus, Severine, Operational Risk and Reputation in the Financial Industry (February 28, 2007). Available at SSRN: https://ssrn.com/abstract=967313

Roland L. Gillet

Université Paris I Panthéon-Sorbonne ( email )

12, place du Panthéon
Paris, IL
France

Georges Hübner

HEC Liège ( email )

Rue Louvrex 14, Bldg. N1
Liege, 4000
Belgium
+32 42327428 (Phone)

Severine Plunus (Contact Author)

University of Liège - Department of Financial Management ( email )

Liege B-4000
Belgium

Do you want regular updates from SSRN on Twitter?

Paper statistics

Abstract Views
2,423
PlumX Metrics