SUERF Policy Brief

Occasional Paper Series Earnings manipulation and probability of default: insights from AnaCredit and supervisory implications

The Impact of Monetary Policy Shocks on Stock Price Crash Risk

This study examines the impact of monetary policy shocks (MPS) on future stock price crash risk (SPCR), using a sample of US firms from 1995 to 2019. We find that expansionary MPS significantly reduce the likelihood of SPCR, while contractionary MPS show no statistically significant effect on SPCR. These results remain robust after controlling for omitted variable bias, reverse causality concern, selection bias, varying forecasting windows, and incorporating different industry definitions. Furthermore, we find that expansionary MPS prevent the accumulation of bad news by curbing aggressive accrual and real earnings management (REM). We also provide evidence for two non–earnings–management‐based channels, where expansionary shocks alleviate external financing constraints and improve investment efficiency. The relation between expansionary MPS and SPCR is more pronounced among firms with better governance monitoring, lower ex‐ante risk, less information asymmetry, greater financial constraints, higher product market competition, and greater stock return sensitivity to MPS. Overall, our findings highlight the important role of macroeconomic policy uncertainty in shaping corporate financial disclosure.

Does lower financial stability influence the banks’ earnings management? The role of enforcement

We investigate the relationship between financial stability and bank earnings management (EM), moderated by enforcement quality. We use a sample of 828 listed commercial banks across 72 countries from 2000 to 2023 and employ linear regression with a high-dimensional fixed-effects estimator in our analysis. We find a positive and economically relevant effect of lower financial stability on the increase in bank engagement in EM through discretionary loan loss provisions. Furthermore, we find that banks operating in higher enforcement-quality environments are less likely to engage in discretionary loan-loss provision practices, suggesting that incentives to manage earnings decrease due to the likelihood of sanctions for poor financial reporting quality. Our results also demonstrate that enforcement quality negatively moderates the relationship between lower financial stability and EM. Our findings extend previous studies that treated financial stability or enforcement quality as isolated factors and provide new evidence for a worldwide sample, whereas many prior studies have focused on specific regions. Our findings suggest that regulators and policymakers seeking to enhance earnings quality in the banking industry should consider that enforcement quality can help mitigate opportunistic EM, particularly in financially unstable banks. Furthermore, our results highlight the relevance of considering institutional differences in enforcement quality when formulating worldwide banking regulations. In addition, our results could be useful to investors analyzing bank financial statements, particularly for commercial banks with lower financial stability operating in countries with weak enforcement environments.

The IFRS convergence influence on financial risk and accounting fraudulent: Evidence from Thailand and Implications for Viet Nam

This paper focuses on whether adopting International Financial Reporting Standards (IFRS) reduces financial risk and accounting fraud. Using 9,194 firm-year observations from Thai-listed non-financial firms between 2011 and 2022, we apply the Beneish M-Score and Altman Z-Score models to detect earnings manipulation and financial distress. The evidence shows that firms reporting under IFRS display lower M-scores, suggesting reduced earnings manipulation. However, IFRS adoption does not have a significant effect on financial distress. This is likely because while IFRS improves transparency and reduces opportunistic reporting, it does not address fundamental financial issues. Overall, our paper provides new evidence on the role of IFRS in enhancing reporting quality in emerging markets and offers implications for financial reporting policy in countries such as Viet Nam.

SUERF Policy Brief

Discussion Papers In Economics And Business