OPERATIONAL RISKS AND FINANCIAL PERFORMANCE – THE CONTEXT OF THE JORDANIAN BANKING ENVIRONMENT

Abstract

The 2008 financial crisis and the eruption of the COVID-19 pandemic have forced banks in Jordan to change their operation pattern. Thus, the main purpose of this study is to examine the impact of operations risk measured by the capital that commercial banks must hold to cover operational risk exposure on listed Jordanian commercial banks performance, represented in two dependent variables: earning per share (EPS) and stock market value (MV). The study used a panel data methodology constructed from the financial statements of all 13 commercial banks listed at Amman Stock Exchange (ASE) for the period 2006-2019. Based on regression analysis, the results explored a significant positive impact on EPS and MV as a proxy of the financial performance. Also, the results, indicated that operational risks, have more explanation power on EPS than on MV. These results contributed to the current literature by providing a roper understanding of the impact of operational risk on financial performance in emerging markets, which could draw some recommendations to banks’ management toward improving the analysis of operational risk.