Occupational Licensing and Accountant Quality: Evidence from the 150-Hour Rule

Abstract

I use the staggered state-level adoption of the 150-hour Rule (the Rule) as a natural experiment along with the career histories of professional accountants’ from LinkedIn to examine the effects of mandatory occupational licensure on the individual quality of Certified Public Accountants (CPAs). Using a difference-in-difference and synthetic control research design, I document that the Rule marginally increases CPA exam pass rates and reduced the candidate supply, leading to an overall decline in the number of successful candidates. My analysis of LinkedIn data shows that individuals subject to the Rule are more likely to be employed at a Big 4 public accounting firm and specialize in taxation. However, Rule individuals have the same likelihood of promotion, the same duration until promotion, and exit public accounting at faster rates than their non-Rule counterparts. These findings suggest that restrictive licensing laws reduced the supply of new CPAs while failing to effectively increase the quality of CPAs as measured by their labor market outcomes.