Quantifying reputational effects for publicly traded financial institutions

Giusi Cannas, Giovanni Masala () and Marco Micocci
Additional contact information
Giovanni Masala: University of Cagliari, Postal: Cagliari, Italy, http://www.unica.it/index.jsp
Marco Micocci: University of Cagliari, Postal: Cagliari, Italy, http://www.luiss.edu/economics/node/97?CodiceDocente=B06

Journal of Financial Transformation, 2009, vol. 27, 76-81

Abstract: This paper aims to measure reputational effects for financial institutions by examining a firm‟s stock price reaction to the announcement of particular operational loss events such as internal frauds. For this purpose we conduct an event study analysis of the impact of operational loss events on the market values of banks and insurance companies, using the OpVar database (OpData® dataset supplied by OpVantage®). This analysis concerns a number of publicly reported banking and insurance operational risk events affecting publicly traded U.S. or European institutions from 2000 to 2006 that caused operational losses of at least U.S.$20 million – a total of 20 bank and insurance company events. We estimate for these institutions the cumulative abnormal returns and find that stock prices react immediately and negatively to announcements of operational losses due to internal frauds. We conclude our analysis by estimating the „reputational value-at-risk‟ at a given confidence level, which represents the economic capital needed to cover reputational losses over a specified holding period with a specific confidence level.

Keywords: Reputational risk; financial institutions (search for similar items in EconPapers)
JEL-codes: G21 (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:ris:jofitr:1388

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