ion, he very much doubted that abstraction could provide either understanding of the real world or, by itself, safe guidance for the legislator or statesman. Although Smith failed to absorb some of the valuable analytical contributions of Hume, the physiocrats, and Turgot, he repeatedly amended his major works by bringing into his discussion some neglected variable, some fresh observation of fact, some new objective. He resorted profusely to qualifications, and his models were therefore not rigorous. is arguable, however, by those who, if forced to choose, prefer realism, or at least the pursuit of it, to rigor and elegance of analysis, that both of his major works are on the whole made better by the qualifications he sprinkled in their pages and that he would have made them still better, although still untidier, if he had used even more qualifying adjectives or phrases [28, p. 327]. It is difficult to exaggerate the intellectual stimulus to be derived from reading this and the numerous other provocative bibliographical articles published in the En-

This paper investigates the usefulness of the real-time macroeconomic news-flow as a leading indicator of firm-level end-of-quarter realized earnings. Using recent advances in macroeconomics, I develop a nowcasting model for quarterly earnings and provide two main findings. First, I show that my model provides out-of-sample expectations that are as accurate as analysts’ forecasts. Second, macroeconomic news embedded in my nowcasts is not fully incorporated into investors’ earnings expectations and predicts future abnormal returns around earnings announcements. These findings have three main implications for capital markets research. First, real-time macroeconomic news can be used to update earnings expectations in real-time. Second, there are economic benefits of doing so, as evidenced by the magnitude of risk-adjusted returns around earnings announcements. Third, after three decades of almost nonexistent research on time-series models for quarterly earnings, the door is open again for fruitful research in this area.

The PCAOB adopted critical audit matters (CAMs) to meet public demand for informative audit disclosure, but stakeholders are concerned this goal has not been achieved. We explore this disconnect via interviews with 30 highly experienced auditors. We find that audit firms expended considerable resources to implement CAM best practices. However, overwhelming institutional pressure gave rise to informal rules of thumb that prioritize symbolic comfort over substantive change. The first is don’t be an outlier , so auditors defer to the national office to ensure conformity and avoid PCAOB scrutiny. The second is report the “right” number of CAMs by never reporting zero and reporting at least one recurring CAM. The third is avoid surprises by communicating with the client to ensure that CAMs do not contain original information and allowing management to preempt auditor disclosures. Collectively, these rules yield CAMs that comply with PCAOB standards but do not provide new information and instead maintain the status quo.

Unlike other investments in the U.S., research and development budgets are not depreciated but expensed. Thus, pre-tax reported earnings fluctuate dollar-for-dollar with changes in R&D budgets. Because executives know more about the firm than outsiders, they may adjust R&D budgets in order to manage accounting earnings and stock prices. Discretionary changes in R&D may also reflect managerial incentives, taxes, and free cash flow. We study a panel of 100 U.S. companies with large R&D budgets for the decade between 1977 and 1986. On average, R&D budget adjustments reduce the anticipated gap between analysts' earnings forecasts and reported income. In the cross-section of firms, more gap closure is associated with high trading volume and high business risk. Less earnings management occurs if the CEO and institutional investors own an important fraction of the shares.

Franklin M. Fisher, Robert M. Solow, James M. Kearl; Aggregate Production Functions: Some CES Experiments, The Review of Economic Studies, Volume 44, Issue