This article presents a theoretical case for replacement of conventional heteroskedasticity-consistent and cluster-robust variance estimators with jackknife variance estimators, in the context of linear regression with heteroskedastic and/or cluster-dependent observations. We examine the bias of variance estimation and the coverage probabilities of confidence intervals. Concerning bias, we show that conventional variance estimators have full downward worst-case bias, while our jackknife variance estimator is never downward biased. Concerning confidence intervals, we show that intervals based on conventional standard errors have worst-case coverage equalling zero, while the jackknife-based confidence interval has coverage probability bounded by the Cauchy distribution, under the auxiliary assumption of normal errors. We also extend the Bell and McCaffrey (2002) student t approximation to our jackknife t-ratio, resulting in confidence intervals with improved coverage probabilities. Our theory holds under broad assumptions, allowing arbitrary cluster sizes, regressor leverage, within-cluster correlation, heteroskedasticity, regression with a single treated cluster, fixed effects, and delete-cluster invertibility failures. Our theoretical findings are consistent with the extensive simulation literature investigating heteroskedasticity-consistent and cluster-robust variance estimation.

This study evaluates the auditing profession's diversity outcomes by comparing diversity along the university to job pipeline for auditing and other comparison disciplines. My tests show consistently anomalous outcomes for Black people in the audit labor pipeline, and therefore, I focus the study on them. I find that, among college freshmen planning to major in accounting, Black college freshmen are significantly overrepresented relative to freshmen planning to major in other business disciplines or nonbusiness disciplines. I find evidence of Black underrepresentation in the audit labor pipeline at every subsequent point: among accounting bachelor's and master's degree recipients, in the audit firm recruiting process, and among young professional auditors. My evidence of especially sharp Black attrition from accounting degree programs is, to my knowledge, novel. Although I lack sufficient data to pinpoint the mechanisms causing this sharp Black attrition from accounting degree programs, my findings are inconsistent with the popular theory that Black college students are distinctively uninterested in pursuing accounting education. It is not yet possible to make well‐targeted and data‐driven policy prescriptions to counter Black attrition from accounting degree programs because its causes are not well understood. Universities could contribute to the diagnosis process by systematically collecting and distributing data characterizing when and why students select away from accounting. My findings on audit firm recruiting are inconsistent with popular theories that Black underrepresentation in audit firms is attributable to overtly racially biased recruiters or lower interest among Black accounting graduates in pursuing careers in audit firms. Rather, my findings conform best with unintentionally biased recruiting by audit firms, which appear to make recruiting investments using outdated definitions of school quality. My evidence suggests that campus‐recruiting leaders within audit firms have the opportunity to hire more Black auditors without reducing the quality of the schools from which they recruit.

We examine whether PCAOB inspection deficiencies related to management review controls (MRCs) affect financial reporting decisions. Using the goodwill impairment setting, we find that firms are more likely to record goodwill impairments when their auditors have received more PCAOB inspection deficiencies related to goodwill MRCs. The association is stronger when inspection deficiencies are more likely to lead to changes to the design or implementation of an internal control (repeat deficiencies and deficiencies related to MRC precision). We observe some evidence that MRC inspection deficiencies increase the likelihood of goodwill impairment even when unrelated to goodwill, indicating that improving the audit of MRCs can broadly affect financial reporting. Our findings provide evidence that PCAOB inspections affect not only auditor behavior but also the financial reporting behavior of audit clients. Specifically, inspection feedback appears to influence reporting outcomes through changes in the audit and evaluation of MRCs, identifying a channel through which regulatory oversight affects issuers. The results have implications for audit firms seeking to remediate inspection deficiencies, for management and audit committees responsible for overseeing significant estimates and impairment analyses, and for regulators evaluating the broader effectiveness of the PCAOB inspection process.

The PCAOB adopted critical audit matters (CAMs) to meet public demand for informative audit disclosure, but stakeholders are concerned this goal has not been achieved. We explore this disconnect via interviews with 30 highly experienced auditors. We find that audit firms expended considerable resources to implement CAM best practices. However, overwhelming institutional pressure gave rise to informal rules of thumb that prioritize symbolic comfort over substantive change. The first is don’t be an outlier , so auditors defer to the national office to ensure conformity and avoid PCAOB scrutiny. The second is report the “right” number of CAMs by never reporting zero and reporting at least one recurring CAM. The third is avoid surprises by communicating with the client to ensure that CAMs do not contain original information and allowing management to preempt auditor disclosures. Collectively, these rules yield CAMs that comply with PCAOB standards but do not provide new information and instead maintain the status quo.

In the Australian real estate market, about a third of properties are sold at auction. Properties that fail auctions sell later for a 1.3 percent discount. Consistent with a causal channel, the effect holds with property-level fixed effects and when auction failure is instrumented by adverse weather or seller overvaluation. Prices cluster below round numbers, and the discount fades over time, inconsistent with our effects reflecting unobserved property characteristics. The evidence suggests that there are behavioral factors affecting the valuations of buyers and sellers.

We examine the association between permissible non-audit services provided by auditors and the timeliness of earnings announcements. Although earnings announcements are unaudited, audit progress influences management’s ability to release earnings while maintaining confidence in reported results. We posit that non-audit services generate earnings announcement timeliness benefits by improving the efficiency and timing of audits through knowledge transfer. We find that tax non-audit services are associated with timelier earnings announcements while nontax non-audit services are not. These benefits are concentrated in the pre-regulatory period before changes in the mid-2000s. Following these changes, the association persists for firms with weaker information environments, poorer performance, and greater audit-related challenges. Overall, our findings show that auditor-provided tax services are associated with enhanced timeliness of unaudited disclosures and that these benefits vary across firms and over time, highlighting previously undocumented spillovers from non-audit services with implications for academic research and regulation.

Firms routinely reduce their employee headcount in response to competitive and economic pressures. The effectiveness of downsizing appears mixed as firms enjoy positive excess returns but also increased delisting and default likelihoods, consistent with compensating investors for additional risk. Insiders at downsizing firms are more likely to purchase shares than those at other firms, and in this study, we explore insider trading activity as a signal about the effectiveness of corporate downsizing. Exploiting heterogeneity within downsizing firms, we find that the excess returns observed in downsizing firms are concentrated in firms where insiders purchase shares. Further, insider purchases are followed by lower future delisting likelihoods and financial distress in downsizing firms. Finally, we observe that insider purchases at downsizing firms are more prominent when trades are easily observable. Our results are consistent with insiders intentionally providing costly, credible signals about corporate executives' plan for firm improvement following downsizing.

Do men negatively respond when women first enter an occupation? We answer this question by studying the end of one of the final explicit occupational barriers to women in the United States: in 2016, the U.S. military opened all positions to women, including historically male-only combat occupations. We exploit the staggered integration of women into combat units to estimate the causal effects of the introduction of female colleagues on men’s job performance, behavior, and perceptions of workplace quality, using monthly administrative personnel records and rich survey responses. We find that integrating women into previously all-male units does not negatively affect men’s performance or behavioral outcomes, including retention, promotions, demotions, separations for misconduct, criminal investigations, and medical conditions. Most of our results are precise enough to rule out small detrimental effects. However, there is a wedge between men’s perceptions and performance. The integration of women causes a negative shift in male soldiers’ perceptions of workplace quality. The decline is driven by units integrated with female officers, likely arising from female officers increasing men’s awareness of workplace problems or from men’s dissatisfaction from working with women in positions of authority—even though men in such units show some performance gains. If male-dominated workplaces are reluctant to incorporate women due to expectations that men will become less productive, our paper provides evidence to weigh against that notion.