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Operational risk and reputation in financial institutions: Does media tone make a difference?
Barakat, Ahmed Ashby, Simon Fenn, Paul Bryce, Cormac
Barakat, Ahmed
Ashby, Simon
Fenn, Paul
Bryce, Cormac
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Publication Type
Journal article with impact factor
Editor
Supervisor
Publication Year
2019
Journal
Journal of Banking & Finance
Book
Publication Volume
98
Publication Issue
Publication Begin page
1
Publication End page
24
Publication Number of pages
Collections
Abstract
Operational risk announcements are unexpected adverse media news that potentially harm the reputation of financial institutions. This paper examines the equity-based and debt-based reputational effects of financial sentiment tones in operational risk announcements and shows how such reputational effects are moderated by alternative sources of public information. Our analysis reveals that the net negative tone and litigious tone have adverse reputational effects, and the uncertainty tone mitigates the adverse reputational impact. Additionally, alternative, simultaneous sources of information neutralize the reputational effects of textual tones. First, third-party information about the event (i.e. regulatory announcements and final settlements) dissolves the favorable (adverse) reputational impact of the uncertainty tone (litigious tone). Second, loss amount disclosure and firm recognition substitute the reputational effects of the net negative tone and uncertainty tone only in Anglo-Saxon countries and market-based economies. Overall, our findings indicate that the reputational effects of the media materialize most when there is lack of certain, quantifiable and regulated public information about the operational risk event.
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Keywords
Content Analysis, Financial Sentiment, Media News, Operational Risk, Reputational Risk, Textual Tone