Does governance matter? Country-level determinants of operational risk

Abstract The severity and frequency of operational loss events show high variability across the globe. In this paper, we first examine extent to which quality country-level governance measured by Worldwide Governance Indicators explains cross-country variation losses. We use comprehensive database SAS OpRisk Global for period 2008–2019 covering 132 countries 8,144 with a total amount almost 490 billion USD. Our findings indicate that indicators lost their explanatory power over past decades, contradicts academic consensus calls new variables. To find these variables, hypothesize changes are driven some important megatrends such as economic development technological advancement, globalization, sustainability. Accordingly, propose an extended model where number mobile subscribers, export GDP ratio, poverty headcount ratio were significant frequency. For severity, only is robust variable. Investors, regulators, analysts should, therefore, concentrate on factors if they wish model, manage, or mitigate risks.