Firm Value And The Impact of Operational Management

Mitra, S. and Karathanasopoulos, A. 2019. Firm Value And The Impact of Operational Management. Asia-Pacific Financial Markets. 26, pp. 61-85. https://doi.org/10.1007/s10690-018-9258-1

TitleFirm Value And The Impact of Operational Management
TypeJournal article
AuthorsMitra, S. and Karathanasopoulos, A.
Abstract

Operational management has been gaining increasing importance in the financial industry and firms make substantial investments in operations management systems to reduce operational risk. Using a standard model of operational risk, it can be shown that pair trade profits reveal differences in relative operational performance between firms. Consequently, pair trade profits have implications for understanding operational performance. Moreover, although operations management systems are well established sources of firm value creation, their relation to pair trade profits are not well understood. In this paper we investigate the impact of operations management systems upon firm value in the financial sector. Firstly, we show that relative operational performance between firms can be evaluated from pair trade returns, providing a new method of measuring operational performance, and demonstrate this using 11,648 pair trades data, weekly stock price data and operational event data from 2000 to 2007. Secondly, we find that pair trade returns and operational risks vary significantly by business line and event type, implying that operational systems can improve firm performance by strategically reallocating them. Thirdly, we show that investor risk aversion varies significantly with different operational risks, implying firms should manage operational systems more strategically to reduce firm value losses. Finally, this paper offers an alternative explanation to pair trade returns compared to current research.

JournalAsia-Pacific Financial Markets
Journal citation26, pp. 61-85
ISSN1387-2834
1573-6946
Year2019
PublisherSpringer
Accepted author manuscript
Publisher's version
License
CC BY 4.0
Digital Object Identifier (DOI)https://doi.org/10.1007/s10690-018-9258-1
Publication dates
Published in print15 Mar 2019
Published online10 Nov 2019

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