Affiliation:
1. Department of Finance, Corvinus University of Budapest, Budapest, Hungary
2. Department of Accounting and Finance, Stockholm School of Economics in Riga, Rīga, Latvia
3. Operational Risk Management Department, OTP Bank, Budapest, Hungary
Abstract
Abstract
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.
Funder
‘Financial and Public Services’ research project
Hungarian Academy of Sciences
Subject
Strategy and Management,General Economics, Econometrics and Finance,Public Administration,Sociology and Political Science,Industrial relations,Business and International Management
Cited by
2 articles.
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