'Operational Risk and Its Determinants': A Study on Logistics and Tranportation Industry in Malaysia

Abstract

Operational risk can caused by both internal and external factors, which is probably due to the inefficient management or breakdowns in internal procedures, human errors and systems failures. It is important for an organisation to manage operational risk efficiently. This study aims to investigate the influence of firm-specific factors and macro-economic factors affecting operational risk among five selected logistics company in Bursa Malaysia. Multiple regression analysis of financial ratios of the five selected companies is conducted for the year from 2012 to 2016. The findings and analysis shows that firm-specific factors (quick ratio and average collection period) have a greater influence on operational risk of the company as compared to macro-economic factors. This study also suggest that it is necessary for a firm to manage its liquid assets in an optimum way and minimizing the cost of liquidation, in order to have sufficient cash flow for business operations. Besides, the company should manage its account receivables efficiently in order to reduce operational risk. This can be achieved by establishing clear credit policies, tracking credit history of new customers, and setting clear payment terms.