Abstract
This study examines the impact of bank market deregulation in U.S. since 1994 on corporate earnings management decision makings. We show that bank market deregulation has led to a trade-off between accrual-based earnings management and real earnings management. The trade-off is driven by the improved monitoring of banks since deregulation where banks pay more diligence to monitor accruals which are reverse in a short-term and more relevant to the default risk banks expose to. To respond, firms engage in more real earnings management which has a long-term impact on corporate performance but is less relevant to current default risk.