HKU Jockey Club Enterprise Sustainability Global Research Institute
World-Class Hub for Sustainability
Vivek Pandey | Xingyu Shen | Joanna S. Wu | Xixi Xiao
Independence at What Cost? Regulation, Accounting Careers, and Human Capital
June 24, 2026
This paper is the winner of the 2026 FARS Midyear Meeting Connecting to Practice Award.
Key Takeaways
- Research Question: Does the Sarbanes-Oxley Act (SOX), by strengthening auditor independence and restricting auditor-client ties, unintentionally reduce accountants’ opportunities to build portable human capital on the job and advance into higher-value careers?
- Data: The study combines résumé-based career histories from Revelio Labs with Audit Analytics and Compustat to track about 130,000 position changes at the eight largest U.S. accounting firms from 1997–2012. It also uses university-level data from IPEDS and the HERI Freshman Survey to examine how changes in career opportunities affect the accounting talent pipeline.
- Method: The authors compare accountants with consultants before and after SOX, within the same firm, metropolitan area, and year, using OLS regressions with firm-MSA-year fixed effects. This design isolates how SOX affected workers whose careers were more directly constrained by independence rules.
- Findings
- After SOX, accountants became 5.4 percentage points less likely to move into consulting (i.e., a 20.2% decline relative to the sample mean) and 3 percentage points less likely to join audit clients (i.e., a 62.5% decline relative to the sample mean) than comparable consultants.
- They also became 4.8 percentage points less likely to join the audit clients of other firms (i.e., a 31.2% decline relative to the sample mean), indicating a broader decline in the portability of accounting human capital rather than only a mechanical effect of the cooling-off rule.
- Relative wages for accountants fell by an additional 3%, and the share of high-SAT students intending to major in accounting declined by 4.7 percentage points (i.e., a 26.1% drop relative to the sample mean).
- Implications: The paper shows independence regulation can impose a long-run human-capital cost. By narrowing the scope of audit work and reducing career mobility, SOX appears to have made public accounting less attractive, especially to high-quality entrants who tend to have alternative options, with potential consequences for the profession’s future talent base.
Source Publication:
Pandey, Vivek, Xingyu Shen, Joanna S. Wu, and Xixi Xiao. 2026. “Independence at What Cost? Regulation, Accounting Careers, and Human Capital.” Journal of Accounting and Economics, forthcoming.
Motivation and Research Question
The Sarbanes-Oxley Act (SOX) of 2002 aimed to restore the integrity of the U.S. financial reporting system by strengthening auditor independence. To that end, SOX prohibits public accounting firms from providing consulting services to their publicly traded audit clients and imposes a cooling-off period before an auditor can join a client they previously audited. These same ties, however, were part of the organizational environment in which accountants built broad business exposure, skills, and networks, shaping the human capital that accountants accumulated on the job and the labor-market value of accounting experience. By restricting non-audit services to audit clients and tightening movement from audit firms to client firms, SOX may therefore have altered the economics of public accounting.
The paper studies whether that change is visible in three linked outcomes: accountants’ mobility into consulting and client-side roles, their relative wages within public accounting, and the subsequent supply of high-quality students choosing accounting as a major.
Data and Methodology
The authors assemble individual-level career histories from Revelio Labs and combine them with Audit Analytics and Compustat to identify audit-client relationships and employer characteristics. The main sample covers roughly 130,000 position changes at the eight largest U.S. accounting firms between 1997 and 2012. To examine how these labor-market changes affected the profession’s future talent pool, the study also uses university-level data from IPEDS and the HERI Freshman Survey on students’ intended majors.
The empirical strategy compares accountants with consultants working in the same firm, metropolitan area, and year. This within-firm-location-time comparison absorbs common employer-level conditions and local labor-market shocks while isolating how SOX affected workers whose tasks and career paths were more directly shaped by independence regulation. The authors then trace the effects of SOX across three related margins: mobility into consulting roles and client firms, wages within public accounting, and subsequent student entry into the accounting major.
A survey of around 80 Big Four audit partners provides additional evidence on how the organization of work changed after SOX. The survey is not the basis for identification, but it helps interpret the mechanism behind the labor-market patterns.
Findings
SOX led to a sharp decline in accountants’ transitions into consulting roles. Relative to consultants working in the same firm, metropolitan area, and year, accountants were 5.4 percentage points less likely to move into consulting after SOX, a 20.2% reduction relative to the pre-SOX mean. The decline is larger for junior accountants (7.3 percentage points), indicating the effect operates early in the career path, where cross-functional exposure is most relevant.
Transitions from accounting firms to client firms exhibit a similar pattern. Accountants became 3 percentage points less likely to join their own firm’s audit clients following SOX, consistent with both the direct effect of the cooling-off restriction and the broader human-capital channel. However, the reduction is not confined to restricted transitions. Accountants also became 4.8 percentage points less likely to join the audit clients of other firms, where no regulatory barrier applies. The decline in these unrestricted moves indicates a reduction in the portability of accounting human capital rather than a purely mechanical effect of regulatory constraints.
Changes in mobility are reflected in relative wages. Prior to SOX, accountants earned less than consultants within the same firms. After SOX, this gap widened by an additional 4.3%. The joint decline in external mobility and relative wages indicates a deterioration in the outside option value associated with accounting careers.
These labor-market changes extend to the supply of entrants. The share of high-quality students (SAT ≥ 1200) intending to major in accounting declined by 4.7 percentage points, a 26.1% reduction relative to the sample mean. The decline is concentrated at universities more likely to place students in large public accounting firms and among students with greater access to labor-market information. Across universities, reductions in alumni transitions from accounting into consulting predict subsequent declines in accounting-major entry, linking changes in career outcomes to shifts in student choice.
Survey evidence on audit partners aligns with these patterns. Reported frequent collaboration between audit and consulting declined from 62% before SOX to 23% afterward. A large majority of partners report such interactions previously improved understanding of client businesses, while few report improvements in audit quality following the restrictions. The reorganization of work toward more isolated audit functions is consistent with the observed decline in mobility and wage outcomes.
Implications
The evidence shows SOX affected more than auditor independence. By restricting interactions between audit and consulting and limiting movement to client firms, the regulation altered the set of skills accountants acquire and the careers those skills support. The resulting decline in mobility, wages, and high-quality entry indicates a reduction in the economic return to accounting careers.
These broader labor-market effects have implications for how independence regulation is evaluated. The standard focus is on reporting quality and conflict mitigation. The results here highlight an additional margin: the production of human capital within the auditing profession. When regulation narrows work scope and reduces career portability, it weakens the incentives for high-quality workers to enter and remain in the field. The consequence is structural. A sustained reduction in the attractiveness of accounting careers shifts the composition of entrants and may affect the long-run quality of the profession.
Policymakers must weigh these trade-offs carefully when designing and evaluating rules to protect auditor independence. Regulations that limit opportunities for human-capital development risk weakening the very profession they seek to safeguard.