The Impact of Environmental Compliance Costs on Earnings Quality and Risk Management in Banks A Panel Analysis of Financial and Non-Financial Data — Banks Operating in Iraq

• AbdulAmeer Najm Abed Jasim

  Author

Abstract

This study aims to measure the impact of environmental compliance costs (ECC) on earnings quality (EQ) and risk management (RM) in Iraqi banks listed on the Iraq Stock Exchange.An econometric approach based on panel data analysis was applied to a sample of eight banks from 2015 to 2024. Environmental compliance was measured using the Eco-CI index, constructed via content analysis. Earnings quality was inversely measured by the absolute value of discretionary accruals (|DA|), derived from a modified Jones model adapted for banks. Risk management was measured using a composite index (RMI) combining four dimensions: capital adequacy, non-performing loans, liquidity, and financial stability (Z-score). Fixed and random effects regression models, alongside robustness tests, were employed. The results reveal a statistically significant negative impact of ECC on |DA|, indicating that higher environmental compliance enhances earnings quality by reducing earnings management. Conversely, ECC showed a significant negative short-term impact on RMI, attributed to the "upfront cost burden" phenomenon. Bank size (SIZE) positively affected earnings quality, while bank age (AGE) was linked to improved risk management.These findings demonstrate that environmental compliance is not merely a regulatory burden, but an investment that improves earnings quality and serves as an early signal for long-term risk management. The study recommends transition incentives from the Central Bank of Iraq and phased compliance strategies for banks..

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Copyright (c) 2026 القاضي, Dr. Sadiq Hadi Muhyi Al-Mansouri, Muhannad Abbas Matar (Author)

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