Financial Sector Integration and Information Spillovers: Effects of Operational Risk Events on U.S. Banks and Insurers
نویسندگان
چکیده
This paper conducts an event study analysis of the market value impact of operational loss events on non-announcing firms in the U.S. banking and insurance industries. We seek evidence of negative or positive information spillovers, i.e., that operational risk events have negative effects on stock prices of non-announcing firms or lead to wealth transfers from announcing to nonannouncing firms. Three main sectors of the financial services industry are analyzed – commercial banking, investment banking, and insurance – and both intra and inter-sector analyses are conducted. The rationale for anticipating inter-sector spillover effects is the integration of the previously fragmented markets for financial services that has occurred over the past twenty-five years – banks have entered the insurance market and insurers offer wholesale and retail financial products in competition with banks. The results indicate that operational risk events cause strong negative intra and inter-sector spillover effects, i.e., the stock prices of nonannouncing firms respond negatively to operational loss announcements. Regression analysis reveals that the negative effect is information-based rather than purely contagious.
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