This study explores how labor mobility restrictions in the form of covenants not-to-compete (CNCs) affect financial statement comparability. Evidence shows that when a state increases the legal enforceability of these covenants, the financial statements of industry peers in this state become less comparable. The impact is stronger for industry followers and firms surrounded by more local peers, suggesting that labor-based knowledge spillover is a mechanism of this impact. In addition, lower comparability following increases in CNC enforceability leads to heightened information asymmetry and higher costs of capital, making it more difficult for firms to raise capital and sustain investment. These findings alert policymakers to a potential side effect of mobility restrictions on financial reporting and call for actions from standard setters and firms to further enhance the comparability and informativeness of financial statements.