Enforcement of non‐compete agreements could affect executives' and directors' incentives to profit from their information advantage. This is because excessive trading profits could result in job termination, which would trigger the restrictions imposed by the non‐compete agreements. We find that executives' and directors' insider trading profits from sales are lower for companies headquartered in states with greater enforcement of non‐compete agreements. The path analyses suggest that high enforcement of non‐compete agreements disincentivizes managers to profit from their information advantage to avoid the possibility of job termination and the cost of job terminations. We also find that insiders in companies headquartered in states with greater enforcement of non‐compete agreements are less likely to exploit their information advantage by timing their sales before unfavorable corporate earnings announcements. The results suggest that enforcement of non‐compete agreements reduces executives' and directors' incentives by imposing costs on future outside employment opportunities.

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.