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Does banking regulatory regime affect the quality of bank earnings in the East African region?

David Mathuva (Strathmore University Business School, Strathmore University, Nairobi, Kenya)
Moses Nyangu (Strathmore University Business School, Strathmore University, Nairobi, Kenya)

Journal of Accounting in Emerging Economies

ISSN: 2042-1168

Article publication date: 15 October 2021

Issue publication date: 9 May 2022




In this paper, the authors examine the association between the banking regulatory regime and the quality of bank earnings. We further investigate whether the banking agency regulatory characteristics moderate the association between banking regulation and earnings quality.


Using panel data spanning 29 years over the period 1991 to 2019, the authors model bank earnings quality as a function of scores for banking regulation for 170 banks in the East African region using both the feasible generalized least squares (FGLS) and generalized method of moments (GMM) estimation methods.


The results, which are robust for endogeneity among other checks, reveal a positive impact of bank regulatory mechanisms on the quality of bank earnings. The authors further establish differential impact of specific regulatory mechanisms, with some contributing positively toward earnings management while others contributing negatively toward earnings management. The differential impacts of banking regulation on earnings quality are also manifested in the country-level analyses.

Research limitations/implications

First, the study utilises a mix of bank-specific, country-specific as well as economy-specific variables in one dataset. Second, the authors utilise survey-based data using the World Bank's Bank Regulation and Supervision Surveys (BRSS) for the periods 1999 to 2019. The authors assume that the bank regulatory mechanisms in place pre-1999 are close to the mechanisms in place as per the 1999 BRSS. Given limitations in data availability, the authors are not able to control for banks engaging in multiple activities such as insurance, underwriting of securities, FinTechs, among others.

Practical implications

The results are useful in bridging the gap between theory and practice regarding the expected effect of strict banking regulations on the quality of earnings in Eastern African Banks. For the positive impact of banking regulation on bank earnings quality to be felt, the institutional, social and environmental specificities of the five selected countries need to be adequately developed and taken into consideration.


This study is perhaps the first to utilise a large dataset of commercial banks from countries in a developing region characterised by relatively lower enforcement and dynamism in the banking regulation. Further, in-depth studies on the association between banking regulation and earnings quality remain sparse.



This paper benefitted greatly from the resources provided by InSPiR2eS (, a globally facing research network aimed at promoting responsible science. The authors sincerely thank the two anonymous reviewers for their insightful comments. Any errors in this paper are the sole responsibility of the authors, and not any of the individuals and organizations mentioned in this acknowledgement.


Mathuva, D. and Nyangu, M. (2022), "Does banking regulatory regime affect the quality of bank earnings in the East African region?", Journal of Accounting in Emerging Economies, Vol. 12 No. 3, pp. 433-467.



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