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-

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.

Owning valuable brands enhances the financial well-being of firms not only through increased revenues and profitability but also by mitigating agency problems, earnings management, and financial reporting irregularities. Firms with high brand equity are less likely to have income-inflating discretionary accruals, announce earnings restatements, or experience SEC investigations. Brand equity reduces the likelihood of manipulation through incentive and opportunity channels, which we capture in CEO characteristics and compensation, and corporate governance measures. Brand equity reduces the likelihood of financial reporting irregularities more for durable goods firms and firms with shorter-tenured CEOs, as the latter are most vulnerable to performance pressures. (JEL G31, G34, M31, M37, M41, M42) Received September 28, 2019; editorial decision May 27, 2020 by Editor Isil Erel.

In this paper I assess the degree of similarity in the cross-sectional pricing of Internet and non-Internet stocks during the tumultuous year of 2000. Despite large differences in their economic fundamentals, I find that the equity market values of Internet firms with immaterial web traffic, firms that are randomly selected, and firms that went public at the same time as Internet firms are similarly related to analysts' forecasts of earnings in 2001 and the long-term rate of growth in earnings. This is not the case for firms with intensive web traffic. I also find that at the peak of Internet prices in March 2000 the market rewarded losses of web-traffic-intensive firms but did not reward profits, while after the peak the market reversed its view, rewarding profits but not losses. Beyond earnings, web traffic is significantly positively priced both at and after the Internet peak. However, I find no evidence that two proxies for supply and demand forces – the degree of public float and short interest – are value-relevant for Internet firms. Overall, I argue that there are enough similarities in the cross-sectional pricing of Internet and non-Internet firms to make it unlikely that the pricing of Internet stocks during 2000 was entirely irrational. Moreover, any irrationality in the prices of Internet stocks cannot be linked to public float and short interest.