The Dot-Com Crash of 2000

Q1, The intended role of each of the institutions and intermediaries

Venture capitalists: they provided capital for companies in their early development stage. They tried to provide a very high rate of return to their investors by selling their stake in their portfolio companies. Also, the earning of partners in a VC firm will largely tie up to their net worth, which solves the agency problems. The main role of a venture capitalist is looking for good business ideas and tries to turn the business into a well-managed and fully functional one.

Investment bank underwriters: their main roles are helping companies price their initial public offerings and underwrite shares, providing advisory services, and introducing them to investors.

Sell-side analysts: they worked at investment banks and brokerage houses and typically focused on 15 to 30 companies in a particular industry. Their intended role was to publish research on public companies and their recommendations have large influence on investors’ decisions.

Buy-side analysts: they are the institutions which do the actual buying and selling of public securities. There are two main roles of them: analysts and portfolio managers. A buy-side analyst will follow some companies in a particular industry, do industry research, talk to management team, estimate earnings and convince managers to follow their suggestions.

Portfolio managers: they actually managed money (sell or buy securities) after considering the recommendations suggested by analysts.

The accounting professions: they have to be independent that are responsible for auditing companies’ financial statements. Those statements that been audited should reflect companies’ economic reality and without any distortions.

FASB: the Financial Accounting Standard Boards is an independent regulatory body, which is responsible for establishing and improving standards of financial accounting and reporting.