We study the influence of political partisanship in SEC investigations and AAER enforcement actions against financial misconduct. We find that the SEC is more likely to launch an investigation against a firm that is misaligned with the agency’s political ideology than other firms. The likelihood of an AAER appears unaffected by political misalignment, but once named in an AAER, a misaligned firm faces harsher penalties than other firms. We find evidence that collectively points to potential misallocation of scarce enforcement resources due to partisanship: conditional on investigation, misaligned firms are less likely to receive an enforcement action, and conditional on misreporting, non-misaligned firms are less likely to be investigated.

On-the-job training is a key driver of human capital development (Becker, 1962). We argue that the Sarbanes-Oxley Act (SOX), aimed at strengthening auditor independence, changed the economics of public accounting and unintentionally reduced opportunities for accountants to invest in their human capital on the job. SOX barred public accounting firms from offering consulting services to audit clients and introduced barriers to accountants transitioning to client firms. This weakened opportunities for collaboration between audit and consulting, limited accountants’ exposure to addressing clients’ business problems, and reduced networking. This diminished opportunities for accountants to gain broad experience, develop skills, and grow professional networks, making the accounting profession less attractive, especially to top talent. Using individual-level data, we compare accountants (treated group) and consultants (benchmark group) before and after SOX, within the same public accounting firm, time, and location. After SOX, accountants were less likely to move into consulting roles or to clients of their audit firms, and their wages declined. Consistent with reduced career opportunities discouraging accounting education, we find a drop in the quality of students declaring accounting majors after SOX. Importantly, to more directly connect career opportunities to university accounting enrollments, we show that when university alumni transitions from public accounting to consulting decline, both the quantity and quality of subsequent accounting enrollments at their alma maters drop. We uncover a previously overlooked cost of regulations concerning the accounting profession.

Facing pressure to meet short-term earnings expectations, corporate managers often take actions that are perceived as value-destroying. Our study provides empirical evidence supporting an alternative view: earnings pressure can discipline managers to undertake value-enhancing actions by refocusing on the firm’s core products. Consistent with this product refocus hypothesis, we find that firms under earnings pressure reduce investment in non-core products, leading to the subsequent underperformance of these non-core products, whereas the performance of core products remains unaffected. As predicted, product refocus is stronger when managers exhibit ex ante high-level agency problems. To strengthen identification, we exploit shocks arising from analyst brokerage mergers and closures. Our study suggests a bright side of earnings pressure—it helps reduce agency-motivated product diversification.