Publicação
The Impact on Operational Risk: An Analysis on Macroeconomic, Governance and Firm-Level Determinants
| Resumo: | Financial institutions and organizations in general face risks every day that threat the stability of the business. An effective Operational Risk management is essential to mitigate, monitor and manage any negative effect or significant impact that can cause uncertainty in financial markets. Among the various risks financial institutions face, most top managers argue that Credit Risk has more impact on an organization, however Operational Risk is also considered the most important type of risk because they can lead to the destruction of a business and is present in every organization. The purpose of this dissertation is to investigate, assess and analyse firm and country specific factors as determinants of operational loss severity. The goal is to increase knowledge regarding Operational Risk, investigate the determinants that explain differences in Operational Risk losses and simultaneously test and validate some of the key findings of previous research. The study deals with 2306 operational loss events from SAS OpRisk database. Events occurred between 2000 and 2020 in European financial firms. The empirical research was conducted by using panel data regression analysis which includes truncation and two-ways fixed effects. The results of this study suggest that operational loss events tend to be more severe during economic downturn, which predominate the high unemployment rate, inflation and interest rate. The results indicate that operational losses are linked with governance indicates, being positively related with rule of law and negatively related with regulatory quality. The findings also found firm specific variables to be insignificantly linked with operational risk losses, with the exception of the size of the firm. We find evidence of significant correlation between Internal Fraud and inflation rate. External Fraud losses show a significant relation with regulatory quality, return on equity and assets. Execution, Delivery and Product Management events indicate a strong relationship with the size of the firm. It is also shown that Clients, Products and Business Practices and Employment Practices and Workplace Safety events are sensitive to macroeconomic and governance indicators. |
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| Autores principais: | Barros, Mariana Castro |
| Assunto: | Operational Risk Panel Data Macroeconomic Impact Governance and Firm Determinants |
| Ano: | 2022 |
| País: | Portugal |
| Tipo de documento: | dissertação de mestrado |
| Tipo de acesso: | acesso aberto |
| Instituição associada: | Universidade Nova de Lisboa |
| Idioma: | inglês |
| Origem: | Repositório Institucional da UNL |
| Resumo: | Financial institutions and organizations in general face risks every day that threat the stability of the business. An effective Operational Risk management is essential to mitigate, monitor and manage any negative effect or significant impact that can cause uncertainty in financial markets. Among the various risks financial institutions face, most top managers argue that Credit Risk has more impact on an organization, however Operational Risk is also considered the most important type of risk because they can lead to the destruction of a business and is present in every organization. The purpose of this dissertation is to investigate, assess and analyse firm and country specific factors as determinants of operational loss severity. The goal is to increase knowledge regarding Operational Risk, investigate the determinants that explain differences in Operational Risk losses and simultaneously test and validate some of the key findings of previous research. The study deals with 2306 operational loss events from SAS OpRisk database. Events occurred between 2000 and 2020 in European financial firms. The empirical research was conducted by using panel data regression analysis which includes truncation and two-ways fixed effects. The results of this study suggest that operational loss events tend to be more severe during economic downturn, which predominate the high unemployment rate, inflation and interest rate. The results indicate that operational losses are linked with governance indicates, being positively related with rule of law and negatively related with regulatory quality. The findings also found firm specific variables to be insignificantly linked with operational risk losses, with the exception of the size of the firm. We find evidence of significant correlation between Internal Fraud and inflation rate. External Fraud losses show a significant relation with regulatory quality, return on equity and assets. Execution, Delivery and Product Management events indicate a strong relationship with the size of the firm. It is also shown that Clients, Products and Business Practices and Employment Practices and Workplace Safety events are sensitive to macroeconomic and governance indicators. |
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