Using online job postings data, we explore whether auditors adjust their human capital in response to clients' cyber breach incidents. We find that audit offices increase their demand for cybersecurity specialists after their clients' cyber breaches, implying that cyber breaches change not only client risk but also their auditor's production function. Consistent with expectations, we document that this impact is larger when breaches involve their own clients (rather than those of peer offices within the same audit firm) and when breaches directly involve financial information. Our evidence holds for both cyber‐focused and non‐cyber‐focused offices, highlighting the broad impact of cybersecurity risks on audit practices. Additionally, we find that audit offices with relatively high investment in cybersecurity human capital are better able to preserve their market share among clients in high‐cyber‐risk industries after a client's cyber breach.

Prior research documents large, persistent productivity dispersion even within narrowly defined industries, suggesting the presence of frictions that impede the efficient allocation of resources. In this paper, we consider the role of information frictions. We posit that high-quality financial reporting with respect to firm productivity can mitigate information frictions and hence facilitate the efficient allocation of resources across firms. Using a large sample of firms in the manufacturing sector, we find evidence consistent with our prediction—industries with higher productivity informativeness tend to have smaller within-industry productivity dispersion. We further find that this relation is stronger in industries with greater dependence on external financing, suggesting that reporting quality affects allocation efficiency, at least in part, through the capital market channel. These findings suggest that the extent to which financial reporting is informative about productivity can affect resource allocation efficiency and hence have real effects at the macro level.