Abstract/Summary

With three empirical essays, this thesis aims to examine the relationship between bank market structure and earnings quality. Specifically, I test how regional bank market structure influence local firms’ earnings quality at the level of U.S. states in Chapter 3. The results show that firms increase their earnings quality in the region where banks have more market power. This finding supports the information-based (IB) hypothesis that banks with market power are more likely to screen and monitor borrowers. I further analyse the trade-off between accrual earnings management and real earnings management as firms react to the change of bank deregulation during 1990s (IBBEA) in Chapter 4. The result show that enterprises use less accrual earnings management and more real earnings management with the freedom of bank market. This finding also supports Chapter 3 as bank deregulation leads to be more consolidated market and large banks have more market power. In Chapter 5, I use 1-to-1 matched lender-borrower (loan) data to examine the relationship between bank market structure and earnings quality. This data sample eliminates the limitations of the regional tests in Chapter 3 and Chapter 4. The results in Chapter 5 further support the earlier two chapters, and I find both screen and monitor work in determining borrowers’ earning quality.