N°25-33: Macroprudential Policies and Bank Earnings Management

We investigate the impact of macroprudential policies on bank earnings management by analysing data from individual banks across 68 countries between 1996 and 2019. We examine earnings management from two perspectives: the information perspective (i.e., earnings persistence, and cash flow predictability), and the opportunistic perspective (i.e., meet or beat benchmark, and abnormal loan loss provisions. Our findings reveal that macroprudential policies affect these dimensions differently. On average, we find tightening (loosening) of macroprudential policies are positively (negatively) associated with earnings management. These results hold across endogeneity checks, subsample analyses, and alternative model specifications. Overall, our study underscores the need for balanced macroprudential policies to at once address information asymmetries, regulatory arbitrage, and agency issues, and to promote financial stability.