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

43 Pages Posted: 17 Mar 2009 Last revised: 24 Sep 2012

See all articles by Anna Chernobai

Anna Chernobai

Syracuse University - M. J. Whitman School of Management

Philippe Jorion

University of California, Irvine - Paul Merage School of Business

Fan Yu

Claremont McKenna College - Robert Day School of Economics and Finance

Date Written: October 21, 2009

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, more complex, and have higher credit risk, more antitakeover provisions, and 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.

Keywords: operational risk, financial institution, credit risk, corporate governance, executive compensation

JEL Classification: G32, G10, G21, G28, C12

Suggested Citation

Chernobai, Anna and Jorion, Philippe and Yu, Fan, The Determinants of Operational Risk in U.S. Financial Institutions (October 21, 2009). Journal of Financial and Quantitative Analysis (JFQA), 46(6), pp. 1683-1725, 2011 , Available at SSRN: https://ssrn.com/abstract=1360266 or http://dx.doi.org/10.2139/ssrn.1360266

Anna Chernobai (Contact Author)

Syracuse University - M. J. Whitman School of Management ( email )

721 University Ave
Syracuse, NY 13244-2450
United States
(315) 443 3357 (Phone)

HOME PAGE: http://https://sites.google.com/a/g.syr.edu/anna-chernobai/

Philippe Jorion

University of California, Irvine - Paul Merage School of Business ( email )

Campus Drive
Irvine, CA 92697-3125
United States
949-824-5245 (Phone)
949-824-8469 (Fax)

Fan Yu

Claremont McKenna College - Robert Day School of Economics and Finance ( email )

500 E. Ninth St.
Claremont, CA 91711-6420
United States
(909)607-3345 (Phone)

HOME PAGE: http://www.cmc.edu/academic/faculty/profile.asp?Fac=553

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
646
Abstract Views
2,337
rank
48,975
PlumX Metrics