Press freedom and operational losses: The monitoring role of the media
•The media plays an important role in corporate governance as a passive monitor.•Press freedom has a positive effect on the frequency and severity of public operational losses.•The detection effect of the media is more pronounced in larger economies.•Globally, about half of the operational losses re...
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| Published in: | Journal of international financial markets, institutions & money institutions & money, 2022-03, Vol.77, p.101496, Article 101496 |
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| Main Authors: | , , , |
| Format: | Article |
| Language: | eng |
| Subjects: | |
| Online Access: | Get full text |
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| Summary: | •The media plays an important role in corporate governance as a passive monitor.•Press freedom has a positive effect on the frequency and severity of public operational losses.•The detection effect of the media is more pronounced in larger economies.•Globally, about half of the operational losses remain hidden.•We find evidence both for the detection and deterrence effects of the media.
We investigate the monitoring role of the media, its detection and deterrence effects in corporate operational losses. Relying on our theoretical model, we analyze 8,144 loss events from 132 countries between 2008 and 2019. Controlling for factors related to governance, living standards, business cycles, and firm size, we find that press freedom has a significant positive effect both on the frequency and severity of the observed operationallosses. An improvement of one standard deviation in press freedom yields around 43% more and 71% higher public losses. Our estimations on hidden losses indicate that the worldwide detection rate of operational losses might be smaller than 53% and 13% in terms of number and value, respectively. Furthermore, in countries with a tightly controlled media, hidden operational risks might be tremendous. We suggest using public databases more carefully, adjusting operational risk models for the reporting bias, and promoting press freedom to improve corporate governance structures. |
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| ISSN: | 1042-4431 1873-0612 |