Business cycle

In the United States, during the dot-com bubble of the late 1990s, many venture capital-driven companies were started, and seeking to cash in on the bull market, quickly offered IPOs. Usually, the stock price spiraled upwards as soon as a company went public. Investors sought to get in at the ground-level of the next potential Microsoft and Netscape.

16)________ could often become overnight millionaires, and due to generous stock options, employees could make a great deal of money as well. The majority of IPOs could be found on the Nasdaq stock exchange, which lists companies related to computer and information technology. However, in spite of the large amounts of financial resources made available to relatively young and untested firms (often in multiple rounds of financing), the vast majority of them rapidly entered cash crises. Crisis was particularly likely in the case of firms where the founding team liquidated a 17)__________ in the firm at or soon after the IPO (Mudambi and Treichel, 2005).

This phenomenon was not limited to the United States. In Japan, for example, a similar situation occurred. Some companies were operated in a similar way in that their only goal was to have an IPO. Some stock exchanges were set up for those companies, such as the Osaka Securities Exchange.

Perhaps 18)__________ markets were in 1929 and 1989, when closed-end country fund IPOs sold at enormous premiums to net asset value. What makes these bubbles so clear is the ability to compare market prices for shares in the closed-end funds to the value of the shares in the funds’ portfolios. When market prices are multiples of the underlying value, bubbles are likely to be occurring.