The.Dot.Com

The Dot-Com Crash

Questions

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

Their role is to use their expertise and insight in the business to give the investors information about the true value of the company.

Institutions have savings that they want to invest and companies need capital to finance and grow their businesses.

There is an information gap between investors and companies, since investors don’t have expertise to determine good investments from bad ones. Companies do not have infrastructure or know-how to receive capital from investors.

They both rely on intermediaries such as: accountants, lawyers, regulatory bodies (SEC), investment banks, venture capitalists, money management firms, and even the media, to help them make the decisions.

Venture capitalists

Their role is to provide capital for companies in their early stages of development, screen good business ideas and entrepreneurial teams from bad ones.

Investment bank underwriters

Investment banks provides advisory financial services, helped companies price their offerings, underwrite shares, and introduce them to investors.

Sell-side analysts

One of their main functions was to publish research on public companies. Covered 15 to 30 companies in a particular industry, forming relationships with and talking to the managements of the companies, following trends in the industry, and ultimately making buy or sell recommendations on the stocks.

Buy-side analysts and portfolio managers

Institutions that do the actual buying and selling of public securities (mutual funds, insurance companies, hedge funds, and other asset managers).

Buy-side analysts had some of the same duties as their sell-side counterparts. They were usually assigned to a group of companies within a certain industry and were responsible for doing industry research, talking to management teams, coming up with...