Study On The Operational Risk, Reputation Effects And Market Reaction Of Commercial Banks

Operational risk is one of vital risks faced by Commercial banks. Due to thecontinuous development of financial innovation, the hazards of operational risk don’tinferior to the traditional risk of banking sector： credit risk and market risk. Since the90s of the20th century, the occurrence of more and more operational risk eventssounded strengthen supervision of operational risk alarm. Operational risk, beingknown for its unpredictable nature and huge extent of the loss amount, has attractedwide attention of scholars at home and abroad, and been included in the dailymanagement of the banking system together with the three traditional risks.Firstly，We systematicly make a brief review of the relevant literature on theexisting study of operational risk, then analysis the operational risk’ status of someinternational active banks and domestic commercial banks, and make a comparativeanalysis. Then we studies the reputation effect of the China’s commercial banksoperational risk loss events and its subsequent impact on the market dynamics yields.Secondly，We “Isolate” pure reputation effect by comparing the loss amount ofthe bank’s market value and its declared loss amount after the occurrence ofoperational risk, and make empirical analysis on the different impact of reputationeffects on the market yields for different banks and different stages of loss events. Wefound that with the continuous disclosure of information，the bank’s operational riskevents at different times will produce different market reaction. In the first presscutting period，the bank will have significantly negative abnormal returns when theannounced losses occur and significantly positive abnormal returns in the settlementperiod，while in the recognition period there is any regularity, and the law of marketyields caused by reputation effects between different types of banks is significantlydifferent.Finally, we have studied the international experience of reputation effect incommercial banking operational risk management, and make suggestions to improveChina’s commercial banks operational risk management combined with the country’sactual situation.