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

Biao Mi, Luqiao Zhang and Liang Han

International Review of Financial Analysis, 2025, vol. 101, issue C

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.

Keywords: Bank market deregulation; Accrual-based earnings management; Real earnings management; Trade-off (search for similar items in EconPapers)
JEL-codes: G20 G21 M41 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:101:y:2025:i:c:s1057521925001279

DOI: 10.1016/j.irfa.2025.104040

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