ABSTRACT Although the PCAOB and the Center for Audit Quality have raised concerns about the negative consequences of audit-employee turnover (PCAOB 2015, 2024; CAQ 2019), these consequences remain largely undocumented due to data limitations. We use novel data to measure how audit-employee turnover within individual offices of accounting firms explains the auditor’s ability to deliver for their clients and shapes the auditor-client relationship. We document that audit-employee turnover hampers the auditor’s ability to deliver the audit and leads to auditor realignment. Specifically, audit-employee turnover is associated with costlier, less timely, and less thorough audits that are of lower quality, which damage auditor-client relationships and lead to greater auditor switching and clients selecting auditors with lower turnover. We find that the presence of other strains to the auditor-client relationship exacerbates turnover’s link with auditor realignment. We further find that the impact of turnover varies by employee rank and when turnover occurs. Data Availability: Data are available from sources identified in the text. JEL Classifications: G28; G38; J63; M12; M41; M49.

ABSTRACT This paper examines the impact of environmental, social, and governance (ESG) disclosure on firm investment. The analysis characterizes the optimal precision of ESG disclosure that channels investors’ tastes for ESG into firm investment. Although it is tempting to think that the optimal ESG disclosure becomes more precise when investors care more about ESG, I show this intuition is incomplete because it overlooks the fact that stronger tastes for ESG change how investors use information. Applying the analysis to a large economy, I show that mandating more precise climate disclosure than would be voluntarily provided motivates self-interested firms to act on common interests in reducing emissions. That is, a regulator can leverage market forces and a disclosure mandate to achieve a similar result as a Pigovian tax in motivating firms to internalize the externalities created by their climate-related investments. JEL Classifications: D82; G14; M41.

ABSTRACT I study disclosure choices in job postings and the following tradeoff: detailed postings inform and attract optimal job applicants (labor market channel) but could simultaneously inform competitors in labor and product markets (proprietary costs channel). First, I provide evidence consistent with a proprietary costs channel. Conditional on a set of labor demand characteristics, private firms and redacting firms write shorter postings (i.e., less contextual specificity), and postings are more often anonymous in high-secrecy industries. Then, I exploit the implementation of federal trade secrecy protections as a shock to both innovation and opacity incentives to assess the balance between the two channels. After implementation, firms demand higher skill levels for innovative jobs, consistent with protections spurring innovation. However, contextual specificity decreases, in line with the proprietary costs channel, as protections are maximized when firms remain opaque regarding innovation. This decrease is attenuated in tight labor markets, consistent with the proposed tradeoff. Data Availability: Data used in this study are available from sources identified in the manuscript. JEL Classifications: D80; J23; J24; J60; M41; M51; O31; O34.

ABSTRACT We use audit firm data breaches as time-varying, reputation-harming events to examine the value of auditor reputation—independent of actual audit quality—in the IPO process. We find that auditor data breaches are negatively associated with IPO offer price revisions. We demonstrate that this effect is due to an increase in institutional investors’ perception of information risk. Specifically, the effect is mitigated when other parties involved in the IPO reduce information risk themselves and when institutional investors are less likely to rely on audited financial information. In additional tests, we find that the impact of breaches on IPO offer price revisions is concentrated in breaches with greater severity, saliency, and frequency, consistent with institutional investors reacting to the announcement of the data breach rather than some other confounding factor. Collectively, our evidence suggests that IPO investors perceive time-varying reputational value of the external auditor, independent of changes in audit quality. JEL Classifications: G32; M42.

ABSTRACT Regulators and academics have long explored the implications of audit market competition on audit pricing and quality, primarily focusing on large audit firms. Despite a presumption of competition among smaller accounting firms, little evidence exists regarding whether and how competition influences audit pricing and quality among them. Additionally, within this market, prior research typically considers competition only from audit offices already serving public-company clients. This study uses a unique database with office-level data for all audit firms in the U.S., regardless of whether they audit public companies, to examine the role of potential entrants. Examining both incumbent threats (offices without public clients but affiliated with a firm serving public clients) and external threats (offices of PCAOB-registered audit firms with no public clients) as sources of competition, the findings suggest that potential entrants are associated with improvements in audit quality and reductions in audit fees for clients of triennially inspected auditors. Data Availability: Data are available from the sources identified in the paper. JEL Classifications: M41; M42; D40; R32.

ABSTRACT Firms commonly employ leaderboards within their peer-to-peer recognition programs. We experimentally investigate how ranking basis—variation in the measure firms use to determine leaderboard rankings—affects employees’ proactive helping behavior. We find that leaderboards ranking employees based on the number of times peer-to-peer recognition is received decrease proactive helping compared with when no leaderboard is provided. Conversely, leaderboards ranking employees based on the number of times peer-to-peer recognition is given increase proactive helping compared with when no leaderboard is provided. These findings underscore the influence of ranking basis on shaping motives linked to proactive helping behavior. Furthermore, these findings highlight for firms the importance of judiciously selecting a ranking basis when utilizing peer-to-peer recognition leaderboards. JEL Classifications: C92; D91; M41; M54.

ABSTRACT We study the investment efficiency of the historical cost and fair value measurement rules when a reporting firm and its investors confront higher-order uncertainty inferring the behavior of others. Although all investors are attentive to the firm’s report, the firm and investors incorrectly believe only some investors are attentive. We find that a report prepared under the historical cost rule yields greater investment efficiency than under the fair value rule if and only if (1) the investors are badly calibrated, (2) the firm’s production technology exhibits sufficiently strong returns to scale, (3) the firm’s productivity realization is sufficiently negatively correlated with market returns, and (4) the firm is sufficiently well calibrated about its investors’ attentiveness. JEL Classifications: C72; D80; D83; M41.

ABSTRACT We examine the relation between debt contract renegotiation costs and contract design. We use a plausibly exogenous shock to expected renegotiation costs arising from a change in the taxation of debt renegotiations to show that, as renegotiation costs decline, the maturity of debt contracts lengthens, the initial likelihood of covenant violation increases, and the use of performance pricing provisions becomes less frequent. The evidence indicates that ex ante allocation of cash flow rights and ex post reallocation of decision rights through renegotiation are local substitutes, where the preference for one mechanism versus the other depends, at least in part, on renegotiation costs. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: G32; G33; G38.