ABSTRACT We investigate labor market consequences for CFOs employed by fraud firms, focusing on reputational contagion for those who are not implicated. These individuals provide an opportunity to understand reputational contagion and the nuanced meaning of “guilt” because the labor market may suspect complicity or infer negligence regardless of whether that is truly the case. We compare these CFOs to a matched sample of non‐fraud CFOs and track both turnover and subsequent employment positions. Non‐implicated CFOs are more likely to experience turnover compared to non‐fraud CFOs, driven in particular by the public revelation of fraud to the labor market. We further find that non‐implicated CFOs are more likely to obtain comparable subsequent employment than non‐fraud CFOs before the fraud is publicly revealed, but not after. In supplementary analyses, we find that turnover rates are highest for non‐implicated CFOs who started their employment with the firm before the fraud began as compared to non‐implicated CFOs who started their employment after the fraud began. These results highlight the labor market significance of the public revelation of fraud and imply that the labor market does not fully distinguish between fraud firm association and general firm performance when making executive hiring decisions.

Abstract Motivated by prior literature on organizational identification and 23 semistructured interviews with a variety of US audit partners and directors, we examine whether the gender and ethnic diversity of an office's audit partners influences the retention of the office's audit professionals and the quality of the audits conducted by the office. Using hand‐collected data on US audit partners, we find that greater levels of (or changes in) diversity in office audit partners' gender and ethnicity are associated with lower (reduced) turnover among office audit professionals and higher (increased) office‐level audit quality. We conduct a path analysis based on the most common mechanisms highlighted in our interviews to provide further insight into the audit quality results. The results indicate partial mediation through increased retention, greater gender and ethnic diversity among office audit personnel, client continuity, and increased efficiency. Further tests reveal that the association with audit quality is incremental to, and distinct from, the effect of individual engagement partner characteristics and does not reflect client screening. The findings underscore the importance of gender and ethnic diversity among office audit partners to organizational outcomes and provide important practical implications for audit firms.