frequency; governance; operational losses; severity; Business and International Management; Industrial Relations; Sociology and Political Science; Public Administration; Economics, Econometrics and Finance (all); Strategy and Management; General Economics, Econometrics and Finance
Abstract :
[en] The severity and frequency of operational loss events show high variability across the globe. In this paper, we first examine the extent to which the quality of country-level governance measured by the Worldwide Governance Indicators explains cross-country variation of operational losses. We use the comprehensive database of SAS OpRisk Global for the period of 2008-2019 covering 132 countries and 8,144 loss events with a total loss amount of almost 490 billion USD. Our findings indicate that the governance indicators lost their explanatory power over the past decades, which contradicts the academic consensus and calls for new explanatory variables. To find these variables, we hypothesize that the changes are driven by some important megatrends such as economic development and technological advancement, globalization, and sustainability. Accordingly, we propose an extended model where the number of mobile subscribers, the export to GDP ratio, and the poverty headcount ratio were significant for the frequency. For severity, only GDP is a significant and robust explanatory variable. Investors, regulators, and analysts should, therefore, concentrate on these factors if they wish to model, manage, or mitigate operational risks.
Disciplines :
Finance
Author, co-author :
BERLINGER, Edina ; University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Department of Finance (DF) ; Department of Finance, Corvinus University of Budapest, Budapest, Hungary
Keresztúri, Judit Lilla ; Department of Finance, Corvinus University of Budapest, Budapest, Hungary
Lublóy, Ágnes; Department of Accounting and Finance, Stockholm School of Economics in Riga, Rīga, Latvia
Voneki, Zsuzsanna Tamásné; Operational Risk Management Department, Otp Bank, Budapest, Hungary
External co-authors :
yes
Language :
English
Title :
Does governance matter? Country-level determinants of operational risk
‘Financial and Public Services’ research project Hungarian Academy of Sciences
Funding text :
This research was supported by the Higher Education Institutional Excellence Program 2020 of the Ministry of Innovation and Technology in the framework of the ‘Financial and Public Services’ research project (TKP2020-IKA-02) at Corvinus University of Budapest. Edina Ber-linger’s research was supported by the Bolyai János scholarship of the Hungarian Academy of Sciences. Zsuzsanna TamásnéVoneki thanks SAS Global for the access to the database.
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