Exploiting the setting of staggered adoption of the Inevitable Disclosure Doctrine (IDD) in U.S. state courts, we examine how quasi-exogenous restrictions of outside employment opportunities affect CEO compensation structure. The IDD adoption constrains executives' ability to work for competitors, which likely decreases CEOs' tendency to take risks by increasing the cost of job loss and reducing the reward to risk taking. We expect the board to respond by increasing the sensitivity of CEO wealth to stock volatility (vega) to encourage risk taking. We find a significant increase in vega post-IDD adoption. The effect is stronger among CEOs with greater career concerns. The effect also increases with the ex ante CEO mobility and the importance of trade secrets, suggesting the board increases vega more when there is a greater reduction in CEO outside opportunities. Overall, we provide new evidence on how external labor market frictions affect the convexity of CEO compensation.

We study whether sell-side financial analysts’ social ties to firm management help them discern firms’ financial reporting frauds and, upon such detection, how the connected analysts disseminate the information. Using unique data from China, we find that, although unconnected analysts do not manifest a significant change in their likelihood of covering the fraud firms nor in issuing more downgrade stock ratings, connected analysts are significantly more likely to drop coverage right after these firms’ first annual reports containing fraudulent information. Meanwhile, mutual funds with a trading commission relationship to these connected analysts (i.e., client funds) are significantly more likely to unload their holdings of fraud firms than nonclient funds after these firms’ first fraudulent annual reports. Overall, the evidence suggests that analysts with social ties to firm management have early access to bad news and choose to privately communicate the negative information to their clients. Data Availability: All data used in this article are publicly available.