Operational Risk Levels Research Articles

Corporate Risk Disclosure Practice and Financial Performance of Listed Industrial Goods Firms in Nigeria

In recent years, corporate risk disclosure has gained increasing attention in corporate governance discourse due to its potential impact on financial performance. The need for transparency in reporting risks has become more critical, particularly in the industrial goods sector, which is often characterized by high operational and financial risks. This study examined the influence of corporate risk disclosure on the financial performance of listed industrial goods firms in Nigeria, a sector known for high levels of operational and financial risk. It specifically assessed how financial and operational risk disclosures affect financial performance. This study employed expo-facto research design. The study population consisted of 13 industrial goods firms listed on the Nigerian Exchange Group (NGX) as of 31st December 2023. Census sampling was applied to include the entire population. Data were collected from annual reports and corporate governance disclosures were analysed with descriptive statistics and feasible generalised least squares regression analysis. The findings found that while financial risk disclosure positively and significantly influences financial performance, operational risk disclosure has a negative but significant effect. These outcomes suggest that financial transparency boosts investor trust and confidence, enhancing financial performance, whereas disclosing operational risks may reduce investor confidence due to concerns about operational stability and profitability. This study concluded that corporate risk disclosure demonstrated a significant role in influencing financial outcomes, yet its effect varies based on the type of risk disclosed. In line with empirical findings of this study, it was recommended that firms should balance transparency with discretion by selectively disclosing operational risks that have been mitigated or managed, reducing the potential for investor concerns over operational vulnerabilities.

Application of neural network technologies to assess the competence of personnel in the tasks of controlling the operational risk of a credit institution

The article is devoted to issues of controlling the operational risks of a credit institution associated with the actions of personnel. Operational risk control is an important aspect of a credit institution’s business. Despite the fact that the Bank of Russia in regulatory documents described in detail the set of actions that banks should take to control operational risks, in practice credit institutions experience serious difficulties in dealing with operational risk associated with the actions of personnel. This may be explained, first, by the difficulty of identifying and formalizing the specified risk. One of the main sources of operational risks associated with personnel actions is employees’ lack of qualifications. This can lead to reduced availability and quality of services provided by credit institutions, as well as possible financial and reputational losses. The purpose of the research conducted by the authors is to improve the system of control of operational risks in a credit institution using artificial intelligence technologies, including the development of tools for assessing in an automated mode the level of criticality of the influence of personnel competence on the occurrence of operational risk events. To achieve this goal, an artificial neural network (ANN) was developed using the high-level Keras library in Python. This paper defines a set of key indicators that have the most significant impact on the possibility of operational risk associated with the actions of the personnel in a credit institution. The article presents the results of checking the generated sets of training and test data using application software packages that implement mathematical methods to assess the consistency of the generated data sets. The paper presents graphs showing the results of training and testing of the artificial neural network that has been constructed. The results obtained are new and may allow credit institutions to significantly increase the efficiency of their work by digitalizing the solution of tasks to control the level of operational risk associated with the actions of personnel.

Towards the improvement of university management

In recent decades, the concept of strategic management at universities has attracted more and more attention. There is a significant increase in the awareness of the importance of well-developed development concepts, both among university employees and management staff. Numerous research studies also discuss the need for changes in that presented area. Unfortunately, the analysis of the literature on the subject shows that more attention is paid to the strategy development phase than to its implementation. There are also few studies examining the influence of factors on the strategy implementation at universities. The area of research was related to factors influencing the process of strategy implementation. This article presents the detailed results of the survey of analysis, which covered the opinions of management and employees influencing the strategy implementation at universities in Poland. The main objective of the study was to measure the operational risk of factors influencing the process of strategy at universities and to specify the factors with the highest operational risk level. The study was conducted using the PAPI (Paper and Pencil Interview) technique, based on the research questionnaire. The method of collecting data in an open (explicit) and standardized manner was used there. For this purpose, a standardized research questionnaire was used.

Development of a Safety Performance Decision-Making Tool for Flight Training Organizations

The purpose of the research was to transform a non-statistical risk score model composed of 12 Safety Perfomrance Indicators (SPIs) into a predictive, safety performance decision-making tool. The model uses what-if scenarios to evaluate how changing controllable input variables affect the level of operational risk within the system. These risk score outputs provide a keen insight into the overall level of risk within the organization.

Impact of independent director network on corporate green innovation: Evidence from Chinese listed companies

AbstractGreen innovation has an essential impact on harmonizing the relationship between the ecological environment and economic development, and alleviating environmental problems. Drawing on social network theory, this article proposes the relationship between the social network of independent directors and corporate green innovation. Using the data from listed Chinese companies from 2008 to 2020, this study finds independent directors in the center of the network can significantly promote corporate green innovation. The promotion is stronger in non‐state enterprises and heavy polluters. Further research finds that internal and external corporate contexts can influence the relationship between independent director networks and green innovation. With the more slack resources, the higher operational risk level, and the more competitive the market, the role of the independent directors' social network on corporate green innovation is stronger. This article contributes to the understanding of the impact mechanisms of corporate green innovation and also helps promote green innovation.

Supply chain risk assessment in disruptive times: opportunities and challenges

PurposeProactive risk assessment suggests that risk assessment should emphasize the consequences that it might cause and the opportunities it might create for firms. Hence, this study aims to validate risk impact on supply chain performance in the context of the Vietnamese construction sector. Also, a complex network, in which multiple risk factors mutually affect, impede or promote each other, is developed to assist managers in tackling unpredictable risks proactively. In particular, the authors investigate whether certain risks could be considered either challenges or opportunities for businesses in turbulent times to improve SC performance.Design/methodology/approachThe construction industry is the focal study context as it is one of the most essential industries in charge of providing accommodations, infrastructures and employment for society. 289 valid responses used in this research are from a large-scale survey result, supported by a Japanese government project promoting sustainable socio-economic development in Vietnam.FindingsFrom the study findings, the authors find that external risk brings opportunities for supply chain performance. Meanwhile, demand risk, when it occurs, can reduce the danger level of operational risk, which is an interesting finding of this research. It is evident that when multiple risk factors mutually affect, impede or promote each other, it provides a more meaningful examination of mutually interconnected supply chain risks.Originality/valuePractitioners should perceive risks as an opportunity than a threat. This study contributes to preventing risks and guaranteeing an effective and efficient supply chain by tackling unpredictable risks in a disruptive period. Moreover, data on validating research models collected during the Covid-19 pandemic and Ukraine and Russia conflicts reflect the topicality of this study.

Low carbon urban rail transit station city integration based on building information modeling and sensor fusion

In order to better play the role of information technology in the construction management of rail transit projects, we analyze the application of geographic information system (GIS) + building information modeling (BIM) technology in the construction management of rail transit projects by combining the characteristics of GIS+BIM technology and aiming at the overall improvement of project management efficiency and technical management methods. This study is mainly conducted with the support of BIM technology and sensing technology. In the design stage, carbon emissions are classified according to the source activities of building carbon emissions, and the carbon emissions in the building life cycle are quickly calculated by using BIM technology, and the design is optimized according to the analysis of the budget results. The experimental results prove that the low-carbon building evaluation standard cloud model of all-electronic computer interlocking system for urban rail transit established in this study, combined with the comprehensive weighting results, calculates the low-carbon index cloud model and comprehensive cloud model, and derives the operational safety risk level of the all-electronic computer interlocking system, and the model optimization effect is good. Practice shows that GIS+BIM technology can realize the refinement and informatization of construction management, and has a broad development space in the field of urban rail transit and urban underground space construction.

An efficient framework for exploiting operational flexibility of load energy hubs in risk management of integrated electricity-gas systems

Faced with increasing operational uncertainties, e.g. wind power variation, the risk management of integrated electricity-gas systems (IEGSs) has become extremely vital, which puts forward a higher requirement for flexible resources. On the demand side of IEGSs, local energy hubs (LEHs) composed of different energy devices can provide flexible resources for system risk management through multi-energy substitution. However, it can be difficult to exploit the operational flexibility of massive LEHs in IEGS operation owing to two major issues, namely 1) privacy concerns of individuals; 2) computation efficiency requirements. To address this, an efficient framework based on flexible regions is innovatively proposed for exploiting LEH flexibility in the risk management of IEGSs. The flexible region is estimated to characterize the adjustable range of energy inputs to LEHs considering the operational requirements of internal energy devices. On this basis, essential flexibility-related information of LEHs is directly utilized for system risk management, which can preserve individual privacy and avoid time-consuming iteration. Firstly, a generalized method based on Minkowski Summation is proposed to efficiently determine the flexible region of LEH, which contains time-independent and temporal-related parts. The two regions are formulated separately considering the multi-energy substitution of LEH and the charging/discharging process of electric storage. The flexible region is then mathematically formulated as a set of linearized equations, which can be directly incorporated into the system scheduling model. On this basis, a risk-based two-stage optimization model is developed for the coordinate dispatch of IEGSs and LEHs considering wind power uncertainties. Case studies demonstrate that the exploitation of LEH flexibility can effectively mitigate operational risk levels of IEGSs and reduce system costs. Besides, the proposed model has the advantage of high computation efficiency compared to the existing iteration-based method.

УПРАВЛІННЯ ОПЕРАЦІЙНИМИ РИЗИКАМИ В ПЛАТІЖНИХ СИСТЕМАХ

The article examines the peculiarities and forms of manifestation of operational risks in payment systems in the conditions of increased digitalization of the payment services market. Based on the analysis of the recommendations of international financial organizations and the National Bank of Ukraine, a classification of operational risks inherent in the activity of payment systems was carried out, and four types of them were distinguished: information risk, risk of errors in management processes, cyber risk and risk of user errors. The main sources of operational risks are identified and it is proven that the vast majority of them are related to the use of new information technologies and the strengthening of cyber threats in the market of payment services. The analysis of operational risk management practices in payment systems allows to conclude that they are heterogeneous and depend on factors that expose payment organizations and payment systems to risks. The characteristics of the forms of manifestation of certain types of operational risks in payment systems are given. The main results of the potential impact of operational risks on the activity of payment systems are characterized, and a method of calculating the indicator of inherent risk is proposed, which characterizes the level of its priority for the payment organization. It is determined that the main goal of operational risk management in payment systems is to maintain the operational stability of the payment organization and ensure the continuity of the payment system. The structure and main components of the operational risk management system are characterized. A functioning scheme of the operational risk management mechanism in the payment system has been developed, the use of which makes it possible to increase the efficiency of their management. A system of key indicators characterizing the limits of changes in the level of operational risk is proposed and can be used for the purpose of early detection and assessment of the potential impact of individual risk factors. The main sources of coverage of damages and losses arising as a result of implementation of operational risk events in the payment system are determined. The main sources of occurrence and features of the influence on the activity of payment systems of cyber threats are characterized. A system of measures to increase the efficiency of operational risk management based on the improvement of the technical-technological and organizational-management characteristics of the functioning of payment systems is proposed.

Managerial Perception of Risk in an Organization in a Post-COVID-19 Work Environment.

The COVID-19 pandemic drew the attention of all industries and organizations to the importance of comprehensive preparation for various types of crises and disruptions. Without proper risk management for crisis situations, it is impossible to talk about organizational resilience, maintaining organizational continuity, or ensuring the company's ability to protect workers' lives and health in a crisis. While the COVID-19 pandemic is rapidly reshaping the work environment, significant challenges related to risk management are emerging. The purpose of this research paper is to examine the impact of a pandemic on the risk perception in an organization by managers of all three levels (strategic, operational, and line level) and to examine the impact of broadly understood risk management on organizational performance. For the examination of operational risk perception, empirical research was conducted in Polish enterprises. The methodology of the survey is based on a questionnaire of operational risk and risk management perception in a post-COVID-19 work environment. According to the survey results, risk management was generally perceived better than the level of operational risk, compared to the period before the pandemic. Therefore, a substantial improvement in risk management during the crisis allowed the surveyed organizations to cope with the pandemic, and even slightly enhance their performance. Organizations have been able to achieve their goals mainly by slightly reducing risk appetite and lowering the tolerable risk level threshold. Even so, organizations have improved their ability to adapt and seize opportunities.

Evaluating operational risk for train control system using a revised risk matrix and FD-FAHP-Cloud model: A case in China

An accident caused by train control system may not only bring expensive loss, but also result in severe destruction to surrounding environment. The purpose of this study is to study operational risk of Chinese Train Control System- Level 3 (CTCS-3). An integrated risk assessment method is developed by combining fishbone diagram (FD), Fuzzy Analytic Hierarchy Process (FAHP) with cloud model. Based on fishbone diagram, risk factors (RFs) of train control system are identified from two perspectives of hazard event, namely occurrence frequency and sequence severity. To further classify RFs quantitatively, a revised risk matrix based on FAHP is introduced to calculate the consequence and likelihood weights for each risk factor (RF), and then Risk Index (RI) is getting by making product of consequence and likelihood weights, which reflects relative influence degree on operational risk. Finally, in order to assess the comprehensive operational risk of CTCS, cloud model is used to logically calculate quantitative results, and the CTCS-3 in Wuhan-Guangzhou high-speed railway is empirically investigated to analyze its overall operational risk level. The result shows that its risk level is between medium and low, and more inclined to low, which means being acceptable but not ideal. Meanwhile, some specific suggestions and measures are proposed to eliminate or reduce RFs with higher frequency and worse consequence.

ASSESSMENT OF FINANCIAL AND ECONOMIC OBJECTIVES OF CREDIT RISK MANAGEMENT IN THE BANKING SYSTEM OF UKRAINE

In the current conditions of implementation and development of banking, bankers are paying more and more attention to the definition, assessment and measures to reduce the operational risk of the bank. Examples of this type of risk are personnel fraud, information system failures, and specific software failures that can result in significant losses and losses. In order to adequately protect against such risk, the bank must generate capital adequate to cover losses from the bank’s operational risk. The lack of systemic among the manifestations of the bank’s operational risk complicates the process of its identification, evaluation and management decisions. Therefore, the assessment of financial and economic prerequisites for operational risk management in the banking sector of Ukraine is becoming important in order to form an effective management system. The purpose of the article is to assess the financial and economic prerequisites for operational risk management in the banking system of Ukraine and determine their impact on the effectiveness of operational risk management of banking institutions. The main indicators of banks’ financial activity and functioning of payment systems in the banking system of Ukraine are analyzed. It is established that the level of operational risk increases with the increase in the volume of payment system transactions in banking. The assessment of financial preconditions of operational risk management in the banking system of Ukraine is carried out. The influence of financial and economic preconditions on the efficiency of operational risk management of banking institutions is determined and substantiated. Analysis of banks’ activity in the payment card market allows to identify negative aspects that necessitate improving the system of operational risk management of banks and finding ways to minimize them for the following reasons: increasing the share of non-cash payments by payment cards in trade and services compared to cash; expansion of the infrastructure for accepting payment cards; increase in revenues to local and state budgets due to fuller taxation of business entities and individuals (non-cash services sharply reduce opportunities for concealment of income.

The Risks of Payment Systems of Banking Institutions of Ukraine

Risks of payment system of banking institutions of Ukraine are considered in this study. Risk events clearly correlate to the effectiveness of network interaction of banking institutions to adapt information technology of payment systems in the payment portfolio of banks when changing operating environment, so mechanism for minimizing their probability has been developed. Economic elements of the mechanism of minimizing the risks of payment systems are identified, which allow forming the planned level of profitability, risk and liquidity of institutions (organizations) within the relevant principles, methods, levers, cash flows in order to respond and adapt to changes in the environment. A methodical approach to assessing the effectiveness of risk management of payment systems of banking institutions, which is from the standpoint of multivariate structuring and a list of their indicators of the microeconomic level, forms an optimal set of tools to minimize the set of risks. Indicators of payment systems of Ukraine are determined, according to the net level of credit risk, liquidity risk, business risk, investment risk, legal risk, operational risk, systemic risk, technological and information security risk. The impulse index of functioning of payment systems of Ukraine is calculated. A neuro-fuzzy model for assessing the individual credit risk of participants – legal entities (users-borrowers) of card payment scoring of a banking institution is developed. The basic criteria for assessing the individual credit risk of a participant-legal entity (user-borrower) by card payment scoring are determined.

CEO-director connectedness and firm’s operational risk

ABSTRACT While internal controls are often carefully set by firm owners to manage risks, operational losses caused by errors in people and procedures could occur if board directors’ monitoring functions are weakened by having private connections with senior managers. This paper provides empirical evidence that the presence of social tie between a firm’s CEO and its board member is associated with a higher likelihood of operational risk events after other key determinants are controlled for. Our sample consists of 168 event and non-event firms that are publicly listed in the U.S. and spans over a historical period over 2000–2008 when the Basel II Accord is in full operation. Our results imply that existing provisions against operational risk should take CEO-director social ties as an additional factor that can undermine corporate governance and expose firms to a higher level of operational risk.

An approach to simultaneously assess operational risk and maturity levels in information technology management

The development of information technology (IT) has had a considerable effect on organizational management and success. Due to the widespread use of IT, the risk of error increases, which can significantly affect organizations. In order to reduce the impact of these errors, organizational maturity and risk should be calculated. The aim of this paper is to investigate the operational risk and maturity level of IT in an anonymized financial institution, based on the American Productivity and Quality Center benchmark and control objectives for information and related technologies. To this end, the operational risk and maturity levels of 34 IT service management processes were investigated by collecting required data from electronic forms as well as through expert opinions. Results were obtained at three levels: the assessment of the operational risk and maturity level (level one), the domains (level two) and the processes (level three) of the IT organization. The findings showed that the organization had a maturity level of 1.11 (indicating ad hoc and disorganized processes) and therefore there was a 47.9% chance of operational risk to IT management goals. The results can help managers allocate limited resources to activities, optimize the use of capital, reduce administrative costs and use IT effectively for growth and development.

Bank Regulation and Market Discipline in the Presence of Risk-Shifting Incentives

This paper presents a bank capital structure model in which equity holders can increase asset risk once debt is in place. I study the effects of capital requirements and subsidized deposit insurance on the bank's privately optimal funding and operational risk level. The model predicts that there are synergetic effects of regulation and market discipline. When the regulator sets the capital charge and deposit insurance premium payments sufficiently high for a risky portfolio, the bank commits to the low-risk asset portfolio by setting a lower leverage ratio. This market discipline effect disappears when the regulatory costs become too high.

A multi-energy complementary virtual power plant operation optimization model for distributed energy aggregation is considered

In this paper, a stochastic scheduling optimization model of virtual power plant (VPP) is established to maximize the net operating income of VPP considering the loss of uncertain risks. Firstly, the model of conventional scheduling optimization of virtual power plant is presented. Then, the risk conditional value (CVaR) theory is introduced to quantify the operational risk level of VPP, and the constraint conditions containing random variables are converted by the confidence method to establish the risk avoidance scheduling optimization model of VPP. Finally, an improved IIEEE30 node system is used as a simulation system to verify the validity and applicability of the proposed model.

Government contracts and trade credit

This study examines the association between government contracts and firms' use of trade credit. Firms with government contracts may demand less trade credit because of their lower operational risk, higher firm performance, stronger capacity to generate internal funds, and better access to other sources of financing. On the other hand, government contractors could receive more trade credit extensions from suppliers. We examine a sample of U.S. listed firms from 2000 to 2016 and find that firms with government contracts have a lower level of trade credit. We also find that government contractors make quicker payments for trade credit contracts than other firms. Moreover, we provide empirical evidence of government contractors' lower levels of operational risk and higher firm performance, which may enable government contractors to generate adequate internal funds for their operations or to obtain other forms of financing at a lower cost and thus lower their demand for trade credit. Incremental to prior research, our study suggests that having government contracts is one of the factors determining trade credit and firms' financing decisions.

Supply chain financing using blockchain: impacts on supply chains selling fashionable products

Today, supply chain finance is a very important topic. Traditional supply chains rely on banks to support the related financing activities and services. With the emergence of blockchain technology, more and more companies in different industries have considered using it to support supply chain finance. In this paper, we study supply chain financing problems in supply chains selling fashionable products. Modeling under the standard newsvendor problem setting with a single manufacturer and a single retailer employing a revenue sharing contract, we develop analytical models for both the traditional and blockchain-supported supply chains. We derive the optimal contracting and quantity decisions in each supply chain with Nash bargaining between the manufacturer and retailer. We analytically show how the revenue sharing contract can coordinate both types of supply chains. We then compare the optimal systems performances between the two supply chains. We prove that the blockchain-supported supply chain incurs a lower level of operational risk than the traditional supply chain. We have shown that if the service fees by banks are sufficiently high, adopting blockchain technology is a mean-risk dominating policy which brings a higher expected profit and a lower risk for the supply chain and its members. For robustness checking, we examine other commonly seen supply chain contracts and alternative risk measures, and analytically reveal that the results remain valid.

Методичний інструментарій оцінювання комплаєнс-ризиків фінансового моніторингу банків

The article examines the essence and directions of identification of compliance risks of banks. The criteria for assessing compliance risks of financial monitoring of banks are purported to be: the level of development of the compliance system; experience in applying influence measures to banks by the NBU for violation of the requirements of legislation in the field of prevention and counteraction to money laundering and financing of terrorism (in the form of written warnings and fines); operational risk level and staff turnover. The defined directions of assessment include result factors (taking into account cases of risk materialization) and the factors that make the compliance function implementation process uncertain. The sequence and methodological instrumentarium for assessing compliance risks of financial monitoring of banks are presented, which provides for: formation of a database for analytical research by means of digitization of data (using coefficient approach and binary characteristics method); consolidation of the results of computation of indicators for the integral assessment of the researched phenomenon (by building up a composite indicator by means of the weighted amounts method). Based on information on the activities of individual banks, which during 2014-2020 belonged to the category of systemically important, practical approbation of the developed methodological instrumentarium was carried out. Recommendations on minimization of compliance risks of banks in the field of financial monitoring are formed, including: improvement of intrabank control systems; ensuring uninterrupted work and thorough training of staff; introduction of operational algorithms of actions to identify the reasons for their involvement in the processes of money laundering; using a risk-oriented approach to test business functions; introduction of effective monitoring systems and expansion of the list of compliance risk management instruments.