We examine how a fixed capital supply shortage affects firm investment. Using equipment transaction–level data, we find pandemic-driven production disruptions significantly altered capital reallocation patterns across firms. A surge in used capital trading activity softened the investment decline, as firms acquired used capital from distant and dissimilar counterparts. Younger firms were disproportionately affected even though they rarely purchase new capital: while in normal times older firms sell their capital to younger firms, following a supply shortage, older firms compete for used capital, pricing out younger firms. Our evidence highlights the crucial role of secondary markets and distributive externalities for corporate investment.

We examine the staggered adoption of additional educational requirements (“150‐hour rule”) for Certified Public Accountants (“CPAs”) to understand the effects of occupational licensing on minority participation in professional labor markets. The 150‐hour rule increased the educational requirement for CPAs from 120 to 150 credit hours, effectively adding a fifth year of study. We find a 13% greater entry decline following the requirement's enactment for minority than nonminority CPA candidates. Our analyses of parental income and financial aid availability point to a socioeconomic status channel explaining the differential entry declines. Studying exam passing patterns, professional misconduct, and job postings we find a deterioration, or at best, no change in CPA quality following enactment.

Using a dataset covering 3 million commercial borrower financial statements, we document a substantial, nearly monotonic decline in banks’ use of attested financial statements (AFS) in lending over the past two decades. Two market forces help explain this trend. First, technological advances provide lenders with access to a growing array of borrower information sources that can substitute for AFS. Second, banks are increasingly competing with nonbank lenders that rely less on AFS in screening and monitoring. Our results illustrate how technology adoption and changes in credit market structure can render AFS less efficient than alternative information sources for screening and monitoring.

Compliance-driven investments in technology—or “RegTech”—are growing rapidly. To understand the effects on the financial sector, we study firms’ responses to new internal control requirements. Affected firms make significant investments in ERP and hardware. These expenditures then enable complementary investments that are leveraged for noncompliance purposes, leading to modest savings from avoided customer complaints and misconduct. IT budgets rise and profits fall, especially at small firms, and acquisition activity and market concentration increase. Our results illustrate how regulation can directly and indirectly affect technology adoption, which in turn affects noncompliance functions and market structure.

Auditors are expected to identify and resolve material misstatements (MMs) in management's financial statements. However, beyond the audit opinion, the audit process is opaque. To address this, we independently survey 462 audit partners and interview 24 audit partners, CFOs, and audit committee members on how partners assess and address MM risk, resolve MMs, and the consequences of MMs. Partners identify MMs in approximately 9% (15%) of public (private) engagements and use qualitative factors to waive apparent MMs. Loan covenant and going‐concern issues increase MM risk more than earnings benchmark issues. Partners point to a variety of both auditor and client factors as threats to audit effectiveness. Partners often rely on rapport with management and involve the national office and audit committee in resolving MMs. Partner incentives around restatements are context specific. Our results provide new insights into the auditor's role in financial reporting that are relevant to academics, practitioners, and regulators.

We study the influence of supervisors on employee misconduct at branches of U.S. financial institutions. Individual supervisor fixed effects explain twice as much variation in branch misconduct as firm fixed effects. Supervisor influence is concentrated in firms that theory suggests are most likely to delegate authority—firms with complex operations, distant branches, and trustworthy supervisors. Supervisors affect misconduct through their personnel decisions, attention to employees with past misbehavior, and ethics and industry rules training. After major internal control improvements, supervisor influence declines. Our results illustrate how supervisors influence misconduct above and beyond firm-level factors. Data Availability: Data are available from the public sources cited in the text.