We study the e ff ects of country-level accounting enforcement on earnings quality of banks and whether bank regulation substitutes or complements the e ff ect of accounting enforcement on bank earnings quality. We also examine whether the in fl uence of accounting enforcement on bank earnings quality changed after the global fi nancial crisis. Using a sample of listed banks from 40 countries between 2001 and 2014, and abnormal loan loss provisions (ALLP) as our main proxy for earnings quality, we document a consistent and strong association between accounting enforcement and bank earnings quality. More speci fi cally, an increase in accounting enforcement decreases the level of ALLP and decreases the propensity to manage earnings to avoid losses. Furthermore, we provide empirical evidence that bank regulation complements the e ff ect of accounting enforcement on bank earnings quality. Finally, unlike in the pre-crisis period, we fi nd a positive association between accounting enforcement and income-decreasing ALLP in the post- crisis period, which indicates that stronger accounting enforcement is associated with more conservative earnings and higher loan loss reserves. Overall, our results indicate that accounting enforcement reduces opportunistic earnings management.
