Case Study

* Intro.

* The world of finance is reactive to major world events and other conditions such as consumer demand.

* Prior to the great tech stock crash of the 1990s, tech companies attempted to make a profit based on trends in consumer demand

* The Rise and Fall of the Tech Sector

* Many companies increased their stock price by simply adding the prefix “e” to their name (Galbraith & Hale, 2004). Rapid rises in stock prices caused a type of “flocking”affect among traders

* This created a “bubble” in tech sector stock prices. However, like a bubble, these rises in stock price more fragile because they had no basis in solid financial management of the company. The stocks were overvalued and many of them declined as quickly as they rose.

* The Rise and Fall of the Tech Sector . . . Cont…

* Dot-com business theory was based on the ideal that profits were best obtained by expanding one’s customer base as quickly as possible, even when this would produce large debt or annual losses.

* At the beginning of the bubble, anydot-com that looked promising could make an initial public offering (IPO) to raise capital, even if it had never had shown profit in the past.

* The Rise and Fall of the Tech Sector . . . Cont…

* The primary tactic was to utilize a public awareness campaign using the biggest mass media form possible.

* Now let us look its two companies who used this strategy to fool investors by placing growth over profits and a solid foundation.

* Nortel (NT)

* The foundations of Nortel go back to 1895 when it began existence as Northern Electric &Manufacturing (Nortel-Canada.com, 2012).

* They were right, and by the 1990s Nortel was one of the largest providers of infrastructure for Internet services.

* Nortel (NT)

* Nortel executives underwent a long court trial to defend themselves against accusations that they fraudulently inflated profits to create a rise in stock price in order to fund...