Tail Risk and Earnings Management: The Role of Gender Diversity and Environmental–Social Reporting in International Banking

ABSTRACT

We examine the impacts of earnings management on the tail risks of banks using a dataset of 3297 bank‐year observations across 157 publicly traded commercial banks from 12 countries, covering 2002–2022. Our findings suggest that banks engaging in earnings management activities exhibit higher tail risks. However, this relationship is moderated by two critical factors: board gender diversity and environmental–social (ES) reporting. Specifically, our analysis indicates that the elevated tail risks associated with higher levels of earnings management can be mitigated by stronger female representation on boards or through higher ES ratings. These insights provide important financial implications and policy guidelines for multiple stakeholders engaging with the international banking sector and ES seeking to strengthen governance framework structures while mitigating risk‐taking.