Diffusing Audit-Acquired Skills Throughout Private Industry: Ex-Auditors and Investment-Q Sensitivity

Abstract

Building on human capital theory, we examine whether experience as an auditor enables individuals to internalize audit firms’ investment capabilities and apply them at subsequent employers. Using individual-level employment history data, we find that firms with a higher proportion of ex-auditors on the accounting team are more responsive to investment opportunities. The effect spans across functions and seniority levels. This pattern is more pronounced when alternative external information is scarcer, the accounting team is leaner, or capital expenditures are more volatile. It is also more pronounced when ex-auditors have broader and more in-depth audit exposures and relevant industry experience. Further, we find that greater ex-auditor representation is associated with an improved internal information environment, a key mechanism for improved capital budgeting. To strengthen identification, we use state-level implementations of 150-hour rules as exogenous shocks to the supply of ex-auditors and the results corroborate our findings. Together, these findings highlight the role of the audit-to-corporate pipeline in diffusing investment insights and best investment practices throughout the private sector.

Keywords: capital investment; investment opportunities; labor allocation; accounting teams; audit experience