The determinants of operational risk in U.S. financial institutions

Anna Chernobai, Philippe Jorion, Fan Yu

Research output: Contribution to journalArticle

69 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)1683-1725
Number of pages43
JournalJournal of Financial and Quantitative Analysis
Volume46
Issue number6
DOIs
StatePublished - Dec 1 2011

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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