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Credit market development and corporate earnings management: Evidence from banking and branching deregulations

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journal contribution
posted on 2023-07-05, 09:43 authored by Yichu Huang, Hong LiuHong Liu, Buhui Qiu

We investigate how external credit market development affects corporate earnings management, by studying the impact of the U.S. interstate banking and branching deregulations on the intensity of accruals-based and real earnings management. We find that the banking and branching deregulations significantly decrease both accruals-based and real earnings-management intensity among firms in deregulated states. The effect is stronger for those deregulated states that have lower bank branch density before deregulation and states that have greater out-of-state bank entry after deregulation. The impact on corporate earnings management is channelled through increased banking competition and credit supply providing firms with easier access to external financing. The findings are robust to various endogeneity concerns. We further document that interstate banking and branching deregulations reduce the instances of financial results being subsequently affected by accounting restatements and improve firms’ information environment.

History

School

  • Loughborough Business School

Department

  • Business

Published in

Journal of Financial Stability

Volume

67

Publisher

Elsevier

Version

  • VoR (Version of Record)

Rights holder

© The Authors

Publisher statement

This is an Open Access Article. It is published by Elsevier under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International Licence (CC BY-NC-ND). Full details of this licence are available at: https://creativecommons.org/licenses/by-nc-nd/4.0/

Acceptance date

2023-05-26

Publication date

2023-05-29

Copyright date

2023

ISSN

1572-3089

eISSN

1878-0962

Language

  • en

Depositor

Prof Hong Liu. Deposit date: 1 July 2023

Article number

101142