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Workforce Policies and Operational Risk: Evidence from U.S. Bank Holding Companies

Published online by Cambridge University Press:  15 September 2022

Filippo Curti ,
Larry Fauver  and
Atanas Mihov
Filippo Curti
Affiliation:
Quantitative Supervision & Research, Federal Reserve Bank of Richmond filippo.curti@rich.frb.org
Larry Fauver
Affiliation:
Haslam College of Business, University of Tennessee lafauver@utk.edu
Atanas Mihov*
Affiliation:
School of Business, University of Kansas
*
amihov@ku.edu (corresponding author)
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Abstract

Using supervisory data on operational losses from large U.S. bank holding companies (BHCs), we show that BHCs with socially responsible workforce policies suffer lower operational losses per dollar of total assets. The association significantly varies by the type of workforce policies and the type of operational losses. It is driven not only by small frequent losses but also by severe tail operational risk events. Further, the risk-reducing effects of the socially responsible workforce policies are stronger for larger BHCs with more employees. Our findings have important implications for banking organization performance, risk, and supervision.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 58 , Issue 7 , November 2023 , pp. 3085 - 3120
Copyright
© The Author(s), 2022. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

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Footnotes

The authors thank an anonymous referee, Azamat Abdymomunov, Laura Baselga-Pascual, Jon Bzdawka, Scott Frame, Jeff Gerlach, Jarrad Harford (the editor), Ping McLemore, Matthew Serfling, Alvaro Taboada, Wei Wang and seminar and conference participants at the Federal Reserve Bank of Richmond, the University of Tennessee, University of Tennessee C. Warren Neel Corporate Governance Center Research Forum, and the 2021 Financial Management Association Annual Meeting. They thank Cooper Killen for research assistance. All errors are those of the authors alone. The views expressed in this article do not necessarily reflect those of the Federal Reserve Bank of Richmond or the Federal Reserve System.

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