The Determinants of Operational Risk in U.S. Financial Institutions

Anna Chernobai, Philippe Jorion and Fan Yu

Journal of Financial and Quantitative Analysis, 2011, vol. 46, issue 6, 1683-1725

Abstract: We examine the incidence of operational losses among U.S. financial institutions using publicly reported loss data from 1980 to 2005. We show that most operational losses can be traced to a breakdown of internal control, and that firms suffering from these losses tend to be younger and more complex, and have higher credit risk, more antitakeover provisions, and chief executive officers (CEOs) with higher stock option holdings and bonuses relative to salary. These findings highlight the correlation between operational risk and credit risk, as well as the role of corporate governance and proper managerial incentives in mitigating operational risk.

Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:cup:jfinqa:v:46:y:2012:i:06:p:1683-1725_00

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