Audit committee and committee subdivisions' characteristics versus operational risk oversight in Turkish banking sector

The main reason for financial scandals and crises experienced during the 2000s has always been addressed as lack of corporate governance; and accordingly, countless theories and suggestions have been asserted in order to develop appropriate corporate governance mechanisms. Nevertheless, because of missing data and abstractness of concepts, it has not been possible to measure completely whether these mechanisms were really effective, or whether they served their designated purpose. The present thesis analyzes, by means of the dynamic-panel data method based on unique data, the effect of important characteristics of internal audit, internal control, risk management, and audit committee mechanisms on operational risk, whose significance has substantially increased after the re-structuring developed in the Turkish Banking industry parallel to the international regulations that arose after the 2001 financial crisis. Also analyzed in terms of their comprehension capability regarding local economic environments are staff size, competence, reporting level, and explanation level of financial resource, as well as gender, auditing background of audit committee, and nationality. According to the study results, it was revealed that while there is almost no effect of the characteristics of the risk management department on operational loss, some characteristics of internal audits and internal control can mitigate operational risk. On the other hand, it was concluded that having female members and experienced members on an audit committee, and leaving off foreign-originated members, have significant positive impact on minimizing operational risk.