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Balancing acts: Bank market deregulation and the dynamics of earnings management

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  • Mi, Biao
  • Zhang, Luqiao
  • Han, Liang

Abstract

This study examines the impact of bank market deregulation in U.S. since 1994 on corporate earnings management decision makings. We show that bank market deregulation has led to a trade-off between accrual-based earnings management and real earnings management. The trade-off is driven by the improved monitoring of banks since deregulation where banks pay more diligence to monitor accruals which are reverse in a short-term and more relevant to the default risk banks expose to. To respond, firms engage in more real earnings management which has a long-term impact on corporate performance but is less relevant to current default risk.

Suggested Citation

  • Mi, Biao & Zhang, Luqiao & Han, Liang, 2025. "Balancing acts: Bank market deregulation and the dynamics of earnings management," International Review of Financial Analysis, Elsevier, vol. 101(C).
    • Handle: RePEc:eee:finana:v:101:y:2025:i:c:s1057521925001279
    DOI: 10.1016/j.irfa.2025.104040
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    More about this item

    Keywords

    Bank market deregulation; Accrual-based earnings management; Real earnings management; Trade-off;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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