We explore why insiders engage in informed trading, given the surprisingly small average insider returns reported in the literature and the potential costs involved. We begin by proposing a model of an insider's decision to engage in insider trading. We then empirically test the model's predictions using archival data of corporate insiders in Sweden. Consistent with the model, we find that less wealthy insiders are more likely to time their insider selling, and to sell in greater magnitudes, prior to abnormal price declines than wealthy insiders. We also find that less wealthy insiders with lower risk aversion as measured by their criminal behavior are particularly prone to timing their selling to avoid price declines.

This article examines the effect of managers' personality trait of extraversion on the voluntary disclosure of their firms. Our results from analyzing archival data from Sweden show that the extraversion scores of CEOs and CFOs obtained from psychological tests are positively associated with the voluntary disclosure scores of their firms. The effect of managerial extraversion on disclosure is, moreover, stronger when managerial discretion or managerial job demands are higher. We also find that extraversion affects managers' disclosure styles during earnings conference calls.

This study examines the role of an individual auditor's cognitive ability in delivering high‐quality audits. Our results from analyzing archival data from Sweden show that audit partners' IQ scores obtained from psychological tests are positively associated with going‐concern audit reporting accuracy and audit fee premiums. We also find some, albeit weak, evidence that audit partners' IQ scores are negatively associated with the income‐increasing abnormal accruals of the client. These results suggest that, although audit services are standardized through various control mechanisms and audits are conducted by teams rather than by individual auditors, the cognitive ability of audit partners responsible for an audit remains important in delivering high‐quality audit services.

Leadership is considered a core competency for auditors. This study examines how auditors' leadership ability affects their labor market outcomes and audit firm performance. Using Swedish military data on qualified auditors (CPAs), we first show that auditors' leadership ability, measured at around age 18, is a strong predictor of their income and career success. However, our results also suggest that the audit labor market compensates for auditors' leadership ability at a much later stage than the general labor market. Second, we examine whether the value of leadership ability derives from higher‐quality auditing, commercial performance, or both. We find strong evidence that leadership ability enhances auditors' commercial performance and some evidence on leadership ability being associated with higher audit quality. Third, at the audit firm level, we find that auditors' leadership ability significantly benefits audit firm performance measured as client portfolio size and audit firm profitability. Finally, we investigate leadership talent attraction and retention in the auditing profession. We find that the auditing profession attracts better leadership talent than the general labor market. Although nearly a quarter of CPAs leave the profession over the sample period, there is no significant difference in leadership ability between those who stay and those who leave. Overall, our results have important practical implications for audit firms' talent management.