The Dot-Com Crash Case

1. What is the intended role of each of the institutions and intermediaries discussed in the case for the effective functioning of capital markets?

i. Venture capitalists

 To provide capital for companies in their early stages of development.

 To screen good business from bad ones.

 Employ experienced and savvy people who worked closely with their portfolio companies. So that they can monitor and guide them to turn a business idea into a well managed, fully functional company that could stand on its own until they can face the scrutiny of the public capital markets after an IPO.

ii. Investment bank underwriters

 Help entrepreneurs in the actual process of doing an initial public offering.

 Provide advisory financial services.

 Helped companies price their offerings.

 Underwrite the shares and introduce them to investors.

iii. Sell-side analysts

 Publish research on public companies.

 Forming relationship with and talking to the managements of the companies.

 Follow trends in the industry.

 Making buy or sell recommendations on the stocks.

iv. Buy-side analysts and Portfolio managers

 The same duties as sell-side counterparts

 Doing industry research

 Talking to companies and management teams

 Coming up with earning estimates

 Doing valuation analysis

 Rating the stock prices of the companies as either buys or sells

 Convince the portfolio managers.

v. Accountants and auditors

 Independent accountants audit the financial statements of public companies to verify their accuracy and freedom from fraud.

 Auditors are responsible