This study examines how options trading affects the rate of return expected by investors, i.e., the implied cost of equity capital. Our cross-sectional analysis suggests that firms with listed options have lower implied cost of equity capital than firms without listed options, while the results from our temporal difference-in-differences analysis suggest that firms with listed options experience a significant decrease in their implied cost of equity capital relative to a matched sample of firms without listed options following an options listing. Moreover, we find that within firms that have listed options, firms with higher options trading volume are associated with lower implied cost of equity capital. These findings, which are robust to a wide range of additional tests, are consistent with the view that options trading improves the precision of information and reduces information asymmetry problems, resulting in lower expected return on equity. Data Availability: All data used in this study are publicly available from the sources identified in the paper.

This study examines whether the audit quality of Big 4 audit firms is affected by an audit office's proximity to more target universities for appointing staff auditors. We identify these target universities using a recruitment map of a Big 4 audit firm and unique office-level hiring data hand-collected from LinkedIn. Our findings suggest that audit offices closer to more of their key feeder schools and universities with accredited business schools are associated with higher audit quality, as observed by a lower likelihood of financial accounting misstatements. Our results are robust across alternative measures of labor market proximity and audit quality, and to a battery of sensitivity tests, including controlling for client firms' proximity to universities. Overall, our results suggest that audit offices benefit from being proximate to more key suppliers of staff auditors.

To address potential threats to auditor independence, the Sarbanes-Oxley Act of 2002 (SOX) requires the audit committee to pre-approve nonaudit services (NAS) procured from the auditor. However, the presence of a former audit firm partner (FAP) affiliated with the current auditor on the audit committee could undermine the audit committee's due diligence over the NAS pre-approval process. To alleviate such concerns, the Securities and Exchange Commission approved a three-year “cooling-off” period for appointing audit firm alumni as independent directors. Our analyses show that the presence of both affiliated and unaffiliated FAPs on audit committees does not lead to greater NAS procured from the auditor; rather, FAPs reduce NAS procured from the auditor. Moreover, NAS decline significantly following the appointment of FAPs to the audit committee. Further tests suggest the three-year cooling-off period may not be warranted and deserves further investigation. Our study raises important implications for regulators, policy makers, corporate boards, and future research. Data Availability: Data are publicly available from sources identified in the text.