Technology Analysis & Strategic Management, Vol. 15, No.

1, 2003

Bursting the dot.com ‘Bubble’: A Case Study in

Investor Behaviour

PETER ROBERT WHEALE & LAURA HEREDIA AMIN

A The Austrian economist Joseph Schumpeter considered innovation to be the driving force
of economic growth and argued that innovations were also the main cause of cyclical fluctuations in the
economy, an idea now well established in the economic literature. In this paper, the authors attempt to
gain insights into the behaviour exhibited by investors before and after the market correction of the newly
established Internet sector—a technology with revolutionary potential—in the Spring of 2000 by
structuring their analysis around the psychological themes of heuristic-driven bias, frame dependence,
and inefficient prices. Linear regression models are constructed using data collected on publicly traded
Internet companies, market performance both before and after the collapse of the Internet sector stock
prices in an attempt to assess whether or not market returns were correlated with certain specific measures
of corporate internet performance. Finally, the authors draw inferences relating to the psychology of
investor behaviour during this period based upon their empirical analysis, and conclude by summarizing
the managerial implications of their findings.

1. Introduction
The Austrian economist Joseph Schumpeter1 considered innovation to be the driving
force of economic growth and argued that innovations were also the main cause of
cyclical fluctuations in the economy, an idea now well established in the economic
literature. It is further argued that clusters of innovations conduce to the growth of new
industries such that when their diffusion takes place it can amount to the emergence of
whole new technological systems and that the impetus to economic growth comes,
therefore, not from the first innovations but from a pattern of change associated with
diffusion investment related to breakthroughs in fundamental science and technology,
inventions, and the level of economic demand.2 It may be argued that recent developments
and investment in electronics and computer technologies, new material technologies and
telecommunications comprise such a cluster of fundamental innovations consistent with
the ‘new technological system’ thesis and that over the next few years Internet-enabling
technologies will have the capacity to radically transform business operations and
structure by facilitating business interfacing. Internet-enabling technologies certainly
appear to have all the characteristics of a fundamental technological innovation with the
power to transform global and economic development and thus, investors’ enthusiasm
for them is understandable. However, we appear to have recently witnessed an over-

Peter Wheale is Director of Postgraduate Research Studies at the Surrey European Business School, University of Surrey,
Guilford GU2 7XH, UK and Laura Heredia is a Business Analyst at Future Electronics, Colnbrook, Berkshire, UK.

ISSN 0953-7325 print; 1465-3990 online/03/010117-20 © 2003 Taylor & Francis Ltd
DOI: 10.1080/0953732032000046097
118 P. R. Wheale & L. Heredia Amin
investment in them far greater even than that of the Tulip mania in 1637, the South Sea
bubble of 1720 and the British Railway euphoria of the 1840s.3
The classic theory of securities market equilibrium is based on the interaction of
completely rational investors. However, several recent studies4 have explored alternatives
to the premise of full rationality. Behavioural finance is a burgeoning field that focuses
on the psychological influences of investors’ behaviour. According to Shefrin5 certain
psychological phenomena pervade the entire landscape of investment and finance, and
these phenomena can be organized around three themes: namely, heuristic-driven bias,
frame dependence, and inefficient prices. Using these three themes as a framework for
our analysis, this study attempts to gain insights into the behaviour exhibited by investors
before and after the market correction of the Internet sector in the first quarter of 2000.
Section 2 describes the rise and fall of the Internet sector during the late 1990s.
Section 3 briefly reviews the theoretical underpinnings of the psychology of investor
behaviour. Section 4 describes the methodology we have used for our empirical analysis.
Section 5 reviews our finding and explores some of the reasons for investor overconfidence,
and their overestimation of the quality of information signals about security values, before
the market correction in spring 2000. Finally, in Section 6 we draw conclusions deriving
from our empirical analysis and summarize some managerial implications of our findings.

2. The Rise and Fall of the Internet Sector

In the early period of the diffusion of a major innovation new firms tend to be formed
to exploit the new technology, and investment and employment in the associated industries
tend to expand. The demand for Internet technology deriving from the huge potential
of commercial Internet implementations by private and public organizations reinforced
the favourable investment climate in the late 1990s for the newly created Internet firms
funded by venture capital and it was claimed that Internet-enabling technologies would
rapidly change the structure of the stock market and the corporate landscape.6 Enormous
opportunities were considered to exist for those companies prepared to find creative and
unique ways to use the Internet to solve problems and provide novel services and
products, and investment literature such as the Investors Guide also encouraged highly
speculative investment.7 Figure 1 summarizes the estimated global e-commerce growth
for business-business (B2B) and business-consumer (B2C) models.
Some innovation studies have postulated the so-called ‘push-pull’ models of innova-
tion. The ‘push’ idea is that innovation is pushed by scientific and technological
breakthroughs—sometimes called ‘capabilities push’ and the ‘pull’ idea is that invention
and innovation are stimulated by some perceived social need or market demand.8
Although evidence from empirical studies do not support simple linear-sequential models
of innovation,9 it appears that Internet technologies and the formation of dot.com
companies have been ‘pushed’ by technological capabilities and to a much lesser degree
‘pulled (by market forces), albeit in complex ways.
A technological advance affecting part of a production process increases the pressures
for technological advances in other parts of the process and may shift the responsiveness
(elasticity) of technological substitution upwards. Process innovation, usually responses to
a shift in demand or to increased costs in a firm’s production function, are typically
embodied in bought-in capital equipment. Rosenberg10 convincingly argues that, historic-
ally, innovations affecting part of a production process lead to searches for innovations
affecting other parts of the process11 but this process takes time, particularly in a sluggish
global economy.
The provision of Internet technologies for commerce, industry and public organization
 Bursting the dot.com ‘Bubble’ 119

8000

6000
Millions ($)

4000

2000

0
2000 2001 2002 2003 2004

B2B 603.7 1137.6 2061.3 3693.8 6335.4

B2C 53.3 96 169.9 285.8 454.4

Source: www.chrisfoxinc.com

Figure 1. Estimated global e-commerce growth.

was the operating multiplier, or ‘cash flywheel’, that sustained the commercial momentum
in the early phase of development and initial capital investment. The operating multiplier
effect works in reverse when this derived demand falls and can have devastating affects
on the demand for capital equipment. Internet firms have suffered from these effects
because they have been highly reliant on demand derived from industry and commerce
(that is, not directly from individual consumers). This derived demand is illustrated in
Figure 1, where the B2B market is estimated to be 12 times the size of the B2C market.
One of the problems that Internet innovators have encountered is that the existing market
has inadequate knowledge and information with which to evaluate and embrace this new
technology. As Mowery and Rosenberg12 argue, the market must learn how to accept
revolutionary new innovations that fall outside of their present mindset. This appears to
have been the case with Internet technology, where much of established industrial
management have been slow to adopt the new technology. Furthermore, dot.com
companies have found themselves having to invest heavily to provide a product (media/
information) with a marginal revenue rapidly approaching zero. However, none of the
above factors, or combination of them, can be said to explain the extraordinary over-
investment in the, so-called, new technology sector in the late 1990s, and its capitulation
in 2000.
Profitability is normally considered to be the sine qua non of the firm, and as Koller13
remarks, the crucial drivers of value creation are, therefore, the potential revenue of a
company and its capability to translate that revenue into cash flows for shareholders.
This ability can be best measured by its long-term return on invested capital. However,
by the time the NASDAQ reached its peak in 2000, many financial analysts were
beginning to believe the idea that stock market valuations were no longer driven only by
traditional economic factors such as earnings growth, inflation, and interest rates. Instead,
they began to suggest that new factors such as the value of intangible assets and brands
warranted the haughty stock prices. During this time there were just two retail Internet
commerce companies that were not over-investing in order to grow, namely, Bay and
Yahoo, whilst the rest of the companies, including Amazon, Pets.com and Buy.com, spent
investors’ money trying to become big before they became profitable, and, with few
120 P. R. Wheale & L. Heredia Amin

Figure 2. NASDAQ 100 (NASDAQ Stock Exchange).

IFX Corp
as of 7–Mar–2002 Splits

+20
0
–20
–40
–60
Percent

–80

SPDE

GEEK.OB
CYCO
BIZZ.OB
–100 FUTR
May 2000 Sep 2000 Jan 2001 May 2001 Sep 2001 Jan 2002
Source: Yahoo Finance (http://finance.yahoo.com)

Figure 3. Web portal’s market performance March 2000–January 2002.

exceptions, these companies and their investors suffered the adverse consequences of this
strategy.
Inevitably, growth without profitability could not be sustained indefinitely, and in the
spring of 2000 there was a ‘capitulation’ of the Internet sector—a sudden and final wave
of selling of Internet stocks that sent the market down far enough and quickly enough to
wipe out all investor optimism for the Sector—which eliminated all, so-called, ‘irrational
exhuberance’. Figure 2 illustrates the 39% fall in the NASDAQ-100 Index during the
year 2000, and Figure 3 traces five web portals, reflecting the dramatic collapse of stock
prices from the spring of 2000 to January 2002.

3. The Psychology of Investor Behaviour

Conventional valuation techniques rely on the assumption that securities’ prices in
financial markets must equal fundamental values, both because all investors are deemed
 Bursting the dot.com ‘Bubble’ 121
to be rational and because arbitrage eliminates pricing abnormalities: this supposition is
known as the efficient market hypothesis (EMH). The EMH is defined by Fama14 as one
in which security prices always reflect individuals acting rationally and considering all
available information in the decision-making process. According to this theory, stock
prices look like ‘random walks’ through time where price changes are unpredictable due
to the fact that they occur in response to new information. Fromlet15 explains that, in
financial economics, abnormality is usually used to describe a temporarily inexplicable
observation such as a stock market ‘bubble’.
The basic theoretical case for the EMH rests on the three following arguments. First,
investors are believed to be rational and therefore they value securities rationally. When
they are rational, they assess each security for its fundamental value: the net present
value of its future cash flows, discounted using its risk characteristics. This means that
once investors learn something about fundamental values of securities, they promptly
react to new information. This reaction is entrenched by bidding up prices when reports
are good and bidding them down when reports are bad. Consequently, all available
information will be reflected in security prices and prices adjust to new levels correspond-
ing to the new net present values (NPVs) of cash flows. Shiller16 remarks that smart
investors, in terms of investment performance, will do no better than the least intelligent
ones. This is because their superior understanding is already incorporated in existing
share prices. In accordance with this theory, Chancellor17 emphasizes that bubbles or
manias cannot exist since market prices always reflect their intrinsic value. Second, some
investors are not rational but when there are a large number of irrational investors
trading randomly, and when their trading strategies are uncorrelated, their trades are
going to nullify each other and, in such a scenario, prices are going to be close to
fundamental values. Third, when investors are irrational, rational arbitrageurs will
eradicate their influence on prices. For example, if a stock is overpriced as a consequence
of the purchases by irrational investors, then this stock becomes a bad buy since its price
exceeds its properly risk-adjusted NPV of its cash flows or dividends. In this situation,
arbitrageurs would sell this high-priced stock and simultaneously purchase other (essen-
tially similar) securities to hedge their risks.
Specifically, the evidence from the market in Internet stocks during the late 1990s
indicate significant deviation from economic efficiency and share prices in this sector
could not be explained by economic ‘fundamentals’ such as inflation, economic growth
and the cost of capital. In this respect, if we agree that fundamentals are unlikely to have
changed much during this period, then it must be that investors’ psychology has changed.
Reviewing the evidence, some academics18 began to wonder whether traditional valuation
approaches were capable of explaining what determined security prices and began to
develop behavioural finance as an alternative approach to understanding financial
markets. Behavioural finance can be defined as the study of how humans interpret and
act on information to make informed investment decisions, and its findings suggest that
investors do not always behave in a rational, predictable and an unbiased manner as
indicated by traditional finance models. From this perspective, financial markets are not
expected to be efficient, and systematic and significant deviations can be expected to
persist for long periods of time.
As described above, in theory, when investors are rational, markets are efficient by
definition, and any irrational trading is supposedly countervailing. However, there is
plenty of evidence that investors frequently deviate from the standard decision-making
model in three broad categories: attitudes toward risk, non-Bayesian expectation forma-
tion, and sensitivity of decision making to the framing of problems.19
Investors often do not look at the levels of final wealth they can attain but at gains
122 P. R. Wheale & L. Heredia Amin
and losses relative to some reference point, which may vary from situation to situation,
and display loss aversion. One notorious example of loss aversion is the reluctance of
investors to sell stocks that lose value.20 They are also likely to systematically violate
Baye’s rule and other axioms of probability theory in their predictions of vague results,
as Kahneman and Tversky observe.21 Investors, for example, may extrapolate past
histories of rapid earnings growth too far into the future and therefore overprice these
companies. This overestimation reduces future returns as past growth rates are unlikely
to repeat themselves and prices adjust to more reasonable valuations. Investors’ prefer-
ences and beliefs in buying securities conform to psychological evidence or heuristics
rather than the normative economic model or Bayesian rationality and is known as
‘investor sentiment’. Investors sharing these preferences or sentiments have been called
‘noise traders’.22 In this sense, there is evidence that people do deviate in the same way,
and not randomly, from rationality; for example, ‘noise traders’ would follow each others’
mistakes by listening to rumours or imitating others. Then, investor sentiment reflects
the common judgement errors made by a significant number of investors, rather than
uncorrelated random mistakes. Furthermore, the theoretical case for efficient markets
will rely on the effectiveness of arbitrageurs. This efficacy will be dependent on the
availability of close substitutes for stocks whose price is potentially affected by noise
trading. Behavioural finance confronts the EMH hypothesis and therefore, below, we
discuss some behavioural principles that have direct implications for this hypothesis.
Shiller23 states that people do not know, to any degree of accuracy, what the
fundamentally correct level of the market should be. Therefore, in order to understand
what influences a market’s level on any given day, or what the market does to stay within
a certain range for days at a time, it is necessary to comprehend psychological ‘anchors’
in the market. Chancellor24 explains the stock market is composed of the actions of
individual speculators; therefore during the bull or manic phase, activity is frenetic and
expectations become unrealistic. In his book, The Great Crash, J.K. Galbraith wrote:
‘Speculation on a large scale requires a pervasive sense of confidence and optimism and
conviction that ordinary people are meant to be rich.’25 In this context, overconfidence
appears to be a fundamental factor promoting the high volume of trade that is observed
in speculative markets. Schumpeter26 observed that speculative manias commonly occur
at the beginning of a new industry or technology when people misjudge the potential
gains and too much capital is attracted to new ventures.
Shiller27 conjectures that psychological research reveals that there are patterns of
human behaviour that imply ‘anchors’ for the market that would not be expected if
markets worked entirely rationally. In this way, investors are striving to do the correct
thing, however, they have restricted capabilities and certain natural modes of behaviour
exist that shape their investment decisions. Two important psychological ‘anchors’ will
be considered below, namely, quantitative anchors and moral anchors.
Quantitative anchors. Where investors are evaluating numbers against prices when they
decide whether stocks are priced correctly, they tend to apply the most recently
remembered price and consequently this tendency enforces the likeness of stock prices
from one day to another. For individual stocks, price changes may tend to be anchored
to the individual changes of other stocks, and price–earnings ratios may be anchored to
other firm’s price–earning levels. This kind of fixing may explain why individual stock
prices move together as much as they do, and consequently the volatility of stock price
indices.
Moral anchors. With moral anchors, people contrast the instinctive or emotional
strength of the reason for investing in the market, which has no quantitative aspect,
against their financial wealth and their perceived need for immediate disposable income.
 Bursting the dot.com ‘Bubble’ 123
In judging the significance of these psychological anchors for the market, it is
important to take into consideration the appearance of a persistent human tendency
toward overconfidence in one’s beliefs. In order to understand why it is that people
seem to be overconfident, psychologists have theorized that people (in evaluating their
evaluations) tend to assess the probability that they are right on only the last step of their
analysis, overlooking other elements that could imply they are wrong. Shiller28 cites
evidence that individuals make probability judgements by looking for similarities to other
common cases, however, they forget that there are many other possible observations to
consider. It is apparent that investors are often overconfident and tend to make judgments
in unclear situations by looking for familiar patterns and assuming that future patterns
will be similar to past ones, often without sufficient consideration of the reasons for the
pattern or the probability of the pattern repeating itself.

4. Methodology
Because of differences between Internet and non-Internet firms various suggestions have
been made about the relationships (or lack thereof ) between the stock market valuation
of, so-called, ‘new economy’ companies and measures of performance. Copeland et al.29
suggest that the way to value new economy companies is to pay special attention to their
future performance and base valuation on their past or present performance. On the
other hand, traditional notions such as profitability, cash flow and a healthy scepticism
remain the key to success. Hand,30 for instance, explored the value relevance of certain
financial statement data as features used by investors in the pricing of Internet stocks.
However, the use of accounting-based measures is treated with extreme scepticism
nowadays and, at the time of writing, allegations of fraud at big corporations ranging
from Enron to WorldCom have further undermined trust in widely used accounting
practices, and created something of a crisis in corporate governance.
We investigated the extent of rationality exhibited by investors before and after the
market correction of spring 2000 by relating the market price of Internet stocks with
data on six of the most renowned measures of corporate performance. Our hope was to
gain some insights into the change of investor psychology after the market correction in
the spring of 2000 and the hypotheses we constructed and tested were, namely, that there
is a significant relationship between corporate performance and stock market returns
during the period pre-market correction, and there is a significant relationship between
corporate performance and stock market returns during the period post-market correction.
Formally stated, the hypotheses are as follows:
H0: There is no relationship between corporate performance and stock market returns
during the pre-or post-market correction periods.
H1: There is a significant relationship between corporate performance and stock market
returns during the pre- and post-market correction periods.
The hypotheses are tested by constructing models, applying Multiple Regression Analysis
(MRA), and assessing the reliability of the regression results by reference to the Pearson
Correlation Coefficient. As key variables we selected six measures as indicators of
corporate performance, namely, return on assets, return on equity, price–sales ratio,
price–earnings ratio, book value, and free cash flow. Quarterly data were collected for
the period January 1999 to June 2001 from a sample frame comprising the population
of 474 US publicly traded Internet companies which were identified from a comprehensive
list provided by Bloomberg Financial Markets via an interrogation terminal at the Surrey
European Management School, University of Surrey, from the subgroups described in
124 P. R. Wheale & L. Heredia Amin
Table 1. Bloomberg’s subgroups
Subgroup Definition

E-commerce/products
E-commerce/services
E-marketing/information
Internet content—
entertainment
Internet content—info/news
Internet finance services
Web hosting/design
Web portals/Internet service
providers
Includes companies which retail physical products via the Web. Excluded are brick-
and- mortar companies that also retail over the Internet as a supplement to their
operations.
Includes businesses that sell services via the Internet and companies that facilitate the
transfer of products and services between the purchaser and seller. Included are
companies that provide the forum for the exchange of goods, services and information
over the Internet and companies that operate as middlemen between the supplier of
the goods and/or services.
Included are companies that enable business decision makers to address critical
marketing and merchandising questions concerning the effectiveness of their websites’
activity data, such as user profiles and audience measurement.
Included are companies that deliver via the World Wide Web media such as text,
music, spoken word, radio, sports, games, and movie related information
Includes companies that provide information and news services such as financial
information, online user forums, newsletters, resource directories, and commentary.
Comprise businesses offering online securities brokerage.
Included are companies which provide hosted websites as well as related e-commerce
services and applications.
Includes companies that offer access to the Internet. These companies offer online
content, search capabilities and directories, filtering on-line communities and e-mail,
and enable e-commerce.

Source: Bloomberg Financial Markets.

Table 1. Specifically, Internet companies were included in the initial sample if they fell
into the range of internet business subgroups. Table 1 contains a list of these subgroups
together with their Bloomberg definitions.
It was considered appropriate to exclude Internet companies from the population if
their market capitalization was less than US $0.05 million. When the data were obtained,
they were grouped in two sub-groups: pre-market correction (from first quarter year 1999
to first quarter 2000) and post-market correction (from second quarter 2000 to second
quarter 2001). Consequently, this resulted in a base total corporate group of 169
companies, which are listed in Appendix A. All data were analyzed using the statistical
software Statistical Package for Social Sciences (SPSS) version 10.0 for Windows.
Particular statistical tests were used to determine whether there is any significant
relationship between corporate performance and stock market return according to the
procedures discussed below.
First, it was necessary to explore the linear regression of the dependent variable (share
value) and each of the independent variables (return on assets, return on equity, price–
sales ratio, price–earnings ratio, book value, and free cash flow). The Pearson correlation
coefficient is used to the test the statistical significance. However, in order to meet the
requirements for the assumptions of normality, linearity and homoscedasticity, it was
necessary to convert continuous numeric data to a discrete number of categories. The
procedure creates new variables containing the categorical data. Data are categorized
based on percentile groups, with each group containing approximately the same number
of cases. For example, a specification of 4 groups would assign a value of 1 to cases below
the 25th percentile, 2 to cases between the 25th and 50th percentile, 3 to cases between
the 50th and 75th percentile, and 4 to cases above the 75th percentile.31
Having examined whether there is a correlation between the variables in the model
constructed, the next step is to test the correlation coefficients between the independent
 Bursting the dot.com ‘Bubble’ 125
variables and the dependent variable through Multiple Regression.32 The null hypothesis
(H0) states that the relationship predicted in the study does not exist and implies that any
relationships are purely due to chance: statistical significance tests are used to either
accept or reject it. The significance test produces a numerical value that can be translated
into a p-value that is expressed either as percentage or a decimal.33 Here, the significance
level that would be applied is 0.05, thus the alternative hypothesis can be accepted if the
probability level is over 95% (i.e. pO0.05).
When trying to measure the level of the relationship between measures of corporate
performance and stock market returns it is of vital importance to create valid and reliable
measures. The reliability of the measures used depends on various factors. First, the data
collected have to be accurate and correct. In addition to that, the firms included in the
sample have to be from different sub-sectors in order to create a sample that actually
represents the business population and not just a specific category of firms. It was decided
to use Bloomberg Financial Markets as the main source for collecting all the secondary
data needed for the statistical analysis. The next section reviews our findings from this
statistical analysis.

5. Review of Findings
Internal validity refers to the extent to which a causal relationship between two variables
could be inferred34 and discriminant validity suggests to what extent a construct was
distinguishable from another construct, which could be examined by the level of measures
being correlated. The acceptable level of correlation from Table 2, such as ROA and
FCF suggests the acceptance of discriminant validity for this study. Some important
measures in this study were correlated, including FCF with ROA, ROE, BV and PS but

Table 2. Correlation matrix of the measures of Internet corporate performance

ROA ROE PE BV PS FCF

ROA Pearson correlation 1.000 0.700 ñ0.050 ñ0.100 ñ0.200 0.300

p (2-tailed) — 0.000 0.530 0.208 0.011 0.000
N 160 160 160 160 160 160

ROE Pearson correlation 0.700 1.000 ñ0.250 0.025 ñ0.075 0.275

p (2-tailed) 0.000 — 0.001 0.754 0.346 0.000
N 160 160 160 160 160 160

PE Pearson correlation ñ0.050 ñ0.250 1.000 ñ0.200 ñ0.375 0.050

p (2-tailed) 0.530 0.001 — 0.011 0.000 0.530
N 160 160 160 160 160 160

BV Pearson correlation ñ0.100 0.025 ñ0.200 1.000 0.400 ñ0.500

p (2-tailed) 0.208 0.754 0.011 — 0.000 0.000
N 160 160 160 160 160 160

PS Pearson correlation ñ0.200 ñ0.075 ñ0.375 0.400 1.000 ñ0.275

p (2-tailed) 0.011 0.346 0.000 0.000 — 0.000
N 160 160 160 160 160 160

FCF Pearson Correlation 0.300 0.275 0.050 ñ0.500 ñ0.275 1.000

p (2-tailed) 0.000 0.000 0.530 0.000 0.000 —
N 160 160 160 160 160 160

Source: SPSS output.

126 P. R. Wheale & L. Heredia Amin
Table 3. Correlation matrix for companies before market correction
ROA ROE PE BV PS FCF

PRICE Pearson Correlation ñ0.025 0.075 ñ0.275 0.525 0.325 ñ0.350

p (2-tailed) 0.754 0.346 0.000 0.000 0.000 0.000
N 160 160 160 160 160 160

Source: SPSS Output.

the correlation metrics summarized in Table 2 indicate an acceptable level of convergent

validity for our purposes.35
The data collected from the 169 companies selected according to the predetermined
procedure, were analyzed by means of linear regression models. The first equation was
tested using a cross-sectional linear regression equation and the results are tabulated in
Table 3.
First, in the correlation matrix for Internet companies, before the market correction
a strong correlation between stock returns and book value (BV) (ró0.525, p\0.05) was
found. With high levels of book value, high values of stock market return are associated.
These findings are congruent with the market inefficiency findings of Basu36 and
Statman,37 where book value appears to represent the fundamentals to which some
investors refer when buying Internet stocks. Second, a positive correlation is revealed
between stock price and price–sales ratio (PS) (ró0.325, p\0.05), implying an association
between high levels of price–sales ratios and high values of stock market returns. These
results support the argument that, since many Internet companies had not earned any
profits, investors seemed to value revenue as a proxy for market acceptance and market
share. Third, the results summarized in Table 3 suggest a negative correlation between
quarterly stock returns and quarterly measures of free cash flow (FCF) (róñ0.350,
p\0.05) and price–earnings ratio (róñ0.275, p\0.05), thus indicating that high values
of stock market return are associated with low levels of free cash flow and low values of
price–earnings (PE) ratio. This result suggests that the market’s pricing of Internet stocks
is such that larger losses translate into higher stock prices. This surprising phenomena is
consistent with the findings of Hand38 who found that many investors appear to assume
that losses incurred by Internet companies reflect strategic expenditures by management,
not poor performance! This heuristically driven bias reflects judgements based on
predictions too far from the performance mean—a form of ‘Gamblers’ fallacy’.
It is important to note, that during this period return on assets (ROA) and return on
equity (ROE) do not reflect a statistically significant association with stock prices. This
finding suggests that during the period pre-market correction, Internet investors did not
evaluate companies’ efficiency in earning profits in terms of the capital provided by the
owners of the company.39 Such overconfidence represents a ‘frame dependence’—a form
of decision making in which the investor is highly selective of available data and cultivates
a high tolerance for risk. Gross40 raises this issue when discussing investors’ preference
for some frame dependences over others, behaviour know as ‘hedonic editing’.
It was necessary to determine how well the four measures of corporate performance
(book value, price–sales ratio, free cash flow and price–earnings ratio) predict market
returns and how much variance in these returns can be explained by scores in these four
variables. To explore these issues, standard linear multiple regression was used.
The results of this regression equation are summarized in Table 4. The R2 of 32.2%
suggests that the independent variables explain 32.2% of the stock returns. The analysis
of variance shown in Table 5 illustrates that the results are of statistical significance, i.e.
p\0.05.
 Bursting the dot.com ‘Bubble’ 127
Table 4. Variance explained by the model (Share price and FCF, PE, PS and BV)
Std error of
Model R R square Adjusted r square the estimate

1 0.567a 0.322 0.304 0.42

a
Predictors: (constant), FCF, PE, PS, BV.
b
Dependent variable: PRICE.
Source: SPSS output.

Table 5. Regression output (ANOVAb )

Sum of
Model squares df Mean square F Significance

1 Regression 12.868 4 3.217 18.377 0.000a

Residual 27.132 155 0.175
Total 40.000 159
a
Predictors: (constant), FCF, PE, PS, BV.
b
Dependent variable: PRICE.
Source: SPSS output.

Table 6. Results of single cross-sectional linear regression equationa

Unstandardized Standardized
coefficients coefficients

Model B Std error
t Significance

1 Constant 1.213 0.275 4.408 0.000

PE ñ0.162 0.072 ñ0.162 ñ2.257 0.025
BV 0.405 0.081 0.405 5.004 0.000
PS 6.922Eñ02 0.077 0.069 0.899 0.370
FCF ñ0.121 0.077 ñ0.121 ñ1.564 0.120
a
Dependent variable: PRICE.
Source: SPSS output.

Table 6 indicates which of the independent variables included in the MRA model
contributed to the prediction of the dependent variable. From Table 6, it is possible to
infer that tangible book value (bó0.405) has the most explanatory value, when the
variance explained by all other variables in the model is controlled for. Tangible book
value makes a unique, and statistically significant, contribution to the prediction of equity
market values; whereas, price–sales ratio, free cash flow and price–earnings ratios do not
appear to make statistically significant contributions to the estimation of the dependent
variable.
The inferences that may be drawn from these results are that investors’ corporate
valuations seem to be strongly influenced by tangible book value that appears to represent
the company’s fundamentals. The second equation was tested using a cross sectional
linear regression equation. Table 7 summarizes the correlation matrix for Internet
companies after the market correction and indicates that quarterly stock returns are
positively correlated with contemporaneous measures of return on assets (ró0.273,
p\0.05), return on equity (ró0.295, p\0.05), book value (ró0.438, p\0.005) and
price–sales ratios (ró0.405, p\0.05). As these results suggest, investors’ conceptions of
128 P. R. Wheale & L. Heredia Amin
Table 7. Correlation matrix for companies after market correction
ROA ROE PE BV PS FCF

PRICE Pearson correlation 0.273 0.295 ñ0.477 0.438 0.405 ñ0.113

p (2-tailed) 0.000 0.000 0.000 0.000 0.000 0.031
N 363 363 363 363 363 363

Source: SPSS output.

valuation towards Internet companies at, and after the market correction have changed.
Return on assets and return on equity reflect a relationship with stock price that suggests
that during this period investors have started to evaluate companies’ efficiency in earning
profits, where profitability is interpreted as the net result of a number of company’s
policies and decisions, as Besley and Brigham41 suggest. The results summarized in Table
7 suggest a negative correlation between quarterly returns and free cash flow (róñ0.113,
p\0.05) and price–earnings ratios (róñ0.477, p\0.05). It can be inferred that the
frame dependence had changed, because the strength of the relationship between free
cash flow and the dependent variable has decreased in comparison with the value before
market correction, and, on the other hand, the strength of the correlation between price–
earnings and market returns has increased.
Furthermore, we considered it was necessary to determine how well the six measures
of performance (free cash flow, tangible book value, price–earnings ratio, price–sales
ratio, return on assets, return on common equity) are associated with Internet market
values, and then to try and establish which of these six elements seems to best
predict stock returns. For this purpose, a standard linear multiple regression model was
constructed.
The results of this model are summarized in Table 8 and suggest a 37.2% strength
in explaining of the variance in stock returns. The analysis of variance shown in Table 9

Table 8. Variance explained by the model (Share price and FCF, PS,
ROA, PE, BV, ROE)
Std error of the
Model R R Square Adjusted R square estimate

1 0.610a 0.372 0.362 0.40

a
Predictors: (constant), FCF, PS, ROA, PE, BV, ROE.
b
Dependent variable: PRICE.
Source: SPSS output.

Table 9. Regression output (ANOVAb )

Model Sum of squares df Mean square F Significance

1 Regression 33.793 6 5.632 35.203 0.000a

Residual 56.957 356 0.160
Total 90.749 362
a
Predictors: (constant), FCF, PS, ROA, PE, BV, ROE.
b
Dependent variable: PRICE.
Source: SPSS output.
 Bursting the dot.com ‘Bubble’ 129
Table 10. Results of single cross-sectional linear regression equationa
Standardized
Unstandardized coefficients coefficients

Model B Std. error
T Significance

1 (Constant) 1.039 0.161 6.466 0.000

ROA 0.131 0.066 0.131 1.976 0.049
ROE 8.856Eñ03 0.068 0.009 0.130 0.897
PE ñ0.292 0.048 ñ0.292 ñ6.121 0.000
BV 0.256 0.049 0.256 5.190 0.000
PS 0.205 0.047 0.205 4.369 0.000
FCF ñ6.408Eñ04 0.046 ñ0.001 ñ0.014 0.989
a
Dependent variable: PRICE.
Source: SPSS output.

illustrates that the result reaches statistical significance i.e. p\0.05. Table 10 indicates
which of the variables included in the model contributed to the prediction of the
dependent variable. As can be seen from Table 10, price–earnings ratio (bóñ0.292)
appears to have the strongest explanatory power in explaining the dependent variable
followed by tangible book value (bó0.256) and price–sales ratio (bó0.205), when the
effects of all other variables in the model are controlled. The inference that may be
drawn from these results is that Internet investors during the post-market correction
period seem to consider companies’ profits in their corporate valuations. Thus, price–
earnings ratio, tangible book value and price–sales ratio make a unique, and statistically
significant, contribution to the prediction of market returns; whereas, the rest of the
variables in the model (return on assets, free cash flow, return on common equity) do not
make a significant unique contribution to the prediction of the dependent variable.
The results obtained for the pre-market correction period suggest that the alternative
hypothesis, namely, that there is significant correlation between corporate performance
and stock market returns, cannot wholly be rejected (see Table 11). Further examination
of the hypothesis indicates that except for ROA and ROE, all the variables of corporate
performance proposed by the model are correlated with the dependent variable. Examina-
tion of findings from the post-market correction period, however, suggest that there is a
significant correlation between corporate performance and stock market returns, (see
Table 12). Further inspection of these results suggest that all the variables of corporate
performance proposed by the model are correlated with the dependent variable, indicating
a sea-change in investors’ attitudes to loss aversion and an increase in reduction of the
risk premium required on Internet stocks.

Table 11. Summary of SPSS output (pre-market correction)

Pearson correlation
Relationships coefficient Accept/reject null hypothesis

Stock returns—return on assets ñ0.025 Accept H0

Stock returns—return on equity 0.075 Accept H0
Stock returns—price–earnings ratio ñ0.275 Reject H0 in favour of H1
Stock returns—book value 0.525 Reject H0 in favour of H1
Stock returns—price–sales ratio 0.325 Reject H0 in favour of H1
Stock returns—free cash flow ñ0.350 Reject H0 in favour of H1

Source: SPSS output.

130 P. R. Wheale & L. Heredia Amin
Table 12. Summary of SPSS output (post-market correction)
Pearson correlation
Relationships coefficient Accept/reject null hypothesis

Stock returns—return on assets 0.273 Reject H0 in favour of H1

Stock returns—return on equity 0.295 Reject H0 in favour of H1
Stock returns—price to earnings ratio ñ0.477 Reject H0 in favour of H1
Stock returns—book value 0.438 Reject H0 in favour of H1
Stock returns—price to sales ratio 0.405 Reject H0 in favour of H1
Stock returns—free cash flow ñ0.113 Reject H0 in favour of H1

Source: SPSS.

The hypothesis tested by means of the statistical analysis of secondary data provides
evidence that apart from the return on assets and return on equity, all the variables
(price–sales ratio, price–earnings ratio, book value and free cash flow) of Internet
corporate performance proposed by the model are correlated with the dependent variable
during the pre-market correction phase. Conversely, all basic measures of performance
included in the model, namely, return on assets, return on equity, price–sales ratio, price–
earnings ratio, book value and free cash flow are value-relevant during the post market
correction phase.
First, during the pre-market correction period, the association between stock returns
and return on assets indicates that there is no statistically significant relationship between
these variables. However, the results reveal that for these relationships during the post-
market correction period there is a weak positive correlation. These findings, that higher
values of stock returns are associated with higher values of return on assets and return
on equity in the post-correction period, suggests that during the pre-market correction
period Internet investors did not evaluate companies’ efficiency in earning profits in
terms of the capital provided by the owners of the company, evidence of overconfidence,
that is, predictions too far from the mean, but that investors’ conception of valuation
appear to have changed in the spring of 2000.
Second, the association between stock prices and price–earnings ratios pre-market
correction period suggests a weak, negative correlation between the two variables. Thus,
as expected, these results indicate that relatively higher values of stock returns are
associated with lower values of price–earnings ratio.
Third, our findings suggest a strong positive correlation between Internet stock returns
and their book value. However, during the post-market correction period the strength of
this relationship significantly diminishes, indicating that higher values of stock returns are
associated with higher levels of book value but that investors were more favourably
disposed towards Internet companies’ book values in 1999, and thus appeared to adopt
a more critical view after the market correction.
Fourth, the findings concerning the association between stock returns and price–to-
sales ratio reveal that there is a positive correlation amongst these two variables during
both periods under study, implying that higher values of stock returns are associated with
higher values of price–sales ratio, suggesting that investors seem still to value revenue as
a proxy of market acceptance and market share.
Finally, the association between stock prices and free cash flow pre-market correction
exhibits a negative correlation between the two variables (that is, that higher values of
stock returns are associated with lower values of free cash flow). However, the strength
of this relationship diminishes throughout the post-market correction period, implying
that investors appear to assume that losses incurred by Internet companies reflect strategic
 Bursting the dot.com ‘Bubble’ 131
expenditures by management, not poor performance. The model, which includes the
book value, price–sales ratio, free cash flow and price–earnings ratio, may explain 32.2%
of the variance in stock returns during the pre-market correction phase. In this MRA
model, tangible book value makes a unique, and statistically significant, contribution to
the prediction of equity market values, implying that tangible book value appears to
represent the company’s fundamentals. During the post-market correction period, the
MRA model included free cash flow, tangible book value, price earnings ratio, price–
sales ratio, return on assets, return on common equity and appears to explain 37.2% of
the variance in stock returns. This model suggests that the price–earnings ratio has the
strongest explanatory contribution, although tangible book value and price–sales ratio
also made a statistically significant contribution to the prediction of market returns. As
Shefrin42 asserts, investors often do not appreciate the concept of regression to the mean
of stock market prices—that predictions tend to be too far from the mean. The inference
that may be drawn from these results is that Internet investors during the period post-
market correction seem to emphasise companies’ profits in their corporate valuations,
suggesting that although some of the basic measures of performance were value-relevant
before the market correction, that all basic measures of performance included in the
MRA model are significantly correlated after the market correction.

6. Conclusions
Schumpeter43 observed that speculative manias commonly occur at the beginning of a
new industry or technology when people misjudge the potential gains and too much
capital is attracted to new ventures. Internet enabling technologies appear to have all the
characteristics of a fundamental technological innovation with the power to transform
global and economic development, but it is now clear that this is an instance of such
investor misjudgement: investors were irrationally over-optimistic about the prospects of
the, so-called, new technology sector. In the ‘push-pull’ terms referred to above, the
capabilities-push led to over-investment in this technology on an unprecedented scale
and far outweighed market demand. It should also be noted too, however, that investors
were encouraged by often biased reporting by investment analysts that had a vested
interest in recommending certain types of investment even though they were not sound—
a conflict of interests relating to the imperfect governance of the financial system itself.44
Structurally, the new technology sector was highly susceptible to contraction because
it is highly reliant on demand derived from industry and commerce and therefore when
the economy in general is not expanding, the operating multiplier tends to work in
reverse. Furthermore, it seems that businesses and consumers have been slow to adopt
the new technology. However, just as the potential of the new technology sector cannot
explain the over-investment and unsustainably high stock prices of the late 1990s, none
of the factors referred to above could explain the extent of the sudden capitulation of the
stocks. For such an explanation we explored the psychology of investors during the pre-
and post-stock market capitulation in the spring of 2000. In taking a behavioural
approach, we have attempted to gain insights into this apparently irrational investment
behaviour exhibited by investors by structuring our analysis around the themes of
heuristic-driven bias, frame dependence, and inefficient prices.
Our methodological approach has been to explore the possible relationships between
various measures of market performance using data on publicly traded Internet compan-
ies, and involved assessing whether or not market returns were correlated to certain
specific measures of corporate performance both before and after the market correction
in the Spring of 2000. To test our hypotheses, secondary data on corporate performance
132 P. R. Wheale & L. Heredia Amin
and Internet stock returns were collected and MDA techniques were employed to
analyze them.
The results of our analysis suggest that only some of the basic measures of performance,
namely, price–sales ratio, price–earnings ratio, book value and free cash flow are value-
relevant over the period before market correction, whereas, all basic measures of
performance included in the model, namely, return on assets, return on equity, price–
sales ratio, price–earnings ratio, book value, and free cash flow are value-relevant over
the post-market correction period.
These findings are consistent with those who suggest that investors believed that it
has been more important for Internet companies to produce revenue rather than profits,
and therefore, revenue is treated as a proxy for market acceptance and market share.45
We provide evidence that there is a stronger negative correlation among the stock prices
of Internet companies and their free cash flows prior to the market correction. This
finding is in accordance with Hand and King,46 who explain that the common claim
made about the market’s pricing of Internet stocks is that larger losses translate into
higher stock prices, the idea here being that losses incurred by these companies reflect
strategic expenditures by management, not poor performance! Managers of these Internet
companies invested substantially in intangible marketing assets in order to expand their
market share quickly in the expectation of obtaining future profits. However, by January
2000 it was clear that the availability of cash would determine the destiny of many
Internet companies and corroborating this assertion, the strength of the relationship
between stock prices and free cash flow diminishes to weak over the post-market correction
period. This reasoning is supported by our study where the results suggest that the market
appears to have adopted a more critical view of Internet companies’ ROE and ROA
rates. In other words, the market treatment of past winners and losers had changed (from
mental accounting that rated historical equity premiums too high relative to the underlying
fundamentals)—and the market had become more economically efficient. According to
convention, shares are valued with reference to a company’s profits. In other words, it is
crucial that the ability of the company to generate future profits from their operations
underlies the valuation to inspire investor confidence: in a sense, it is the view of one
group of investors of the willingness of another set of investors to believe in the company’s
ability to make profits.
Because of lack of data availability, it has not been possible to include non-financial
web traffic metrics in the models, nor was it feasible to incorporate certain other financial
variables that could be of interest for the research, for example, marketing expenses and
R&D expenditures, although Internet companies have tended to capitalize the costs of
both marketing expenditures and product development thereby artificially inflating profits
or (more probably) reducing losses.
Innovation is an activity that has the potential to provide information helpful to
sound investment decisions and we conclude this paper by providing some management
implications deriving from our analysis.
One obvious lesson to be learned is that financial managers need to keep in mind
that fundamental technological innovation does not necessarily translate into great
investment opportunities.47 We have noted above that process innovation, usually
responses to a shift in demand or to increased costs in a firm’s production function, are
typically embodied in bought-in capital equipment. As Rosenberg48 asserts, innovations
affecting part of a production process lead to searches for innovations affecting other
parts of the process but this process takes time, particularly in a sluggish global economy.
Internet company valuations must ultimately be based on corporate viability, implying
a reasonable business plan where logical expectations of generating a profit at some
 Bursting the dot.com ‘Bubble’ 133
future date feature. These future profits will generate the added future value that must
translate into increased net cash flows. Discounted cash flow (DCF) is the dominant
valuation methodology, but there is a need to incorporate uncertainty and managerial
flexibility into the DCF calculations. In order to hope to value a company accurately,
several valuation methodologies need to be used.
Behavioural finance has been introduced as a valuable supplement to classical financial
theory. Psychological factors were considered important inputs to investment decision-
making. In this way, reactions on financial markets that seem to be in opposition to
traditional theory, that is, they appear irrational, may be explained and, as Fromlet49
asserts, appreciation of the psychological inputs to investment decisions may assist
financial managers in avoiding serious mistakes and enable them to construct more viable
investment strategies.
We have no doubt, that in the course of time, Internet-enabling technologies will
greatly benefit the economy and consumers in a multitude of ways. As a result of the
invention of the World Wide Web, the rules by which businesses operate are being
altered. For consumer goods companies, the Internet allows them to gain direct access to
suppliers around the world. Potentially, at least, the web can put consumers in control,
giving them access to information about products when they want it and how they want
it. This kind of ‘consumer empowerment’ means downward pressure on prices because
informed consumers can shop around in ways that could never have been imagined
before. But until the global economy expands and established industrial management
adopt this new technology with greater enthusiasm than hitherto we must wait for the
Internet-enabling technologies to have the revolutionary transforming consequences of a
‘new technological system’.

Notes and References

1. J. Schumpeter, Business Cycles: A Theoretical, Historical and Statistical Analysis of the Capitalist Process
(New York, McGraw-Hill, 1939).
2. J. Clark, C. Freeman & S. Soele, ‘Long Waves, inventions, and innovations’, in: Long Waves in the
World Economy (London, Frances Pinter, 1984); C. Freeman, The Economics of Industrial Innovation
(London, Frances Pinter, 1982); J. Schumpeter, Innovation and Economic Growth (Cambridge, MA,
Harvard University Press, 1966).
3. E. Chancellor, Devil Take the Hindmost: A History of Financial Speculation (London, Macmillan, 1999).
4. R. Shiller, Irrational Exuberance (Princeton, Princeton University Press, 2000); A. Shleifer, Inefficient
Markets—An introduction to Behavioral Finance (Oxford, Oxford University Press, 2000).
5. H. Shefrin, Beyond Greed and Fear (Boston, Harvard Business School Press, 2000).
6. P. Oppenheimer, Chambers & R. Batty, The Anatomy of Stock Market Valuation (London, HSBC
Capel, 1996).
7. A. King, ‘Valuing Red-Hot Internet Stocks, Strategic Finance, 81, 10, 2000, pp. 28–34.
8. K. Pavitt, ‘Technical Innovation and Industrial Development—the New Causality’, Futures, 11, 6,
1979, pp. 458–470.
9. See, for example, Freeman, op. cit., Ref. 2.
10. N. Rosenberg, Perspectives on Technology (Cambridge, UK, Cambridge University Press, 1976).
11. See also, R. Nelson & S.G. Winter, ‘In Search of a Useful Theory of Innovation’, Research Policy, 6,
1977, pp. 36–76.
12. D. Mowery & N. Rosenberg, ‘The Influence of Market Demand Upon Innovation: A Critical
Review of Some Recent Empirical Studies’, Research Policy, 8, 1979, pp. 102–153.
13. T. Koller, ‘Valuing dot-coms After the Fall, The McKinsey Quarterly, 2, 2001, pp. 103–106.
14. E.F. Fama, ‘Efficient Capital Markets: A Review of Theory and Empirical Work’, Journal of Finance,
25, 2, 1970, pp. 383–417.
134 P. R. Wheale & L. Heredia Amin
15. H. Fromlet, ‘Behavioral Finance-Theory and Practical Application’, Business Economics, 36, 3, 2001,
pp. 63–70.
16. Shiller, op. cit., Ref. 4.
17. Chancellor, op. cit., Ref. 3.
18. For a review of this burgeoning field, see R.H. Thaler (Ed.), Advances in Behavioural Finance (New
York, Russell Sage Foundation, 1993).
19. D. Kahneman & M.W. Riepe, ‘The Psychology of the Non-Professional Investor’, Journal of Portfolio
Management, 24, 4, 1998, pp. 52–65.
20. See, for example, Shleifer, op. cit., Ref. 4.
21. D. Kahneman & A. Tversky, ‘Prospect Theory: An Analysis of Decision Making Under Risk’,
Econemetrica, 47, 2, 1979, pp. 263–291.
22. See, for example, A. Kyle, ‘Continuous Auctions and Insider Trading’, Econemetrica, 53, 1, 1985,
pp. 1315–1336.
23. Shiller, op. cit., Ref. 4.
24. Chancellor, op. cit., Ref. 3.
25. J.K. Galbraith, The Great Crash, 10th edn (London, Penguin Books, 1977), p. 72.
26. Schumpeter, op. cit., Ref. 1.
27. Schiller, op. cit., Ref. 4.
28. Ibid.
29. T. Copeland, T, Koller & J. Murrin, Valuation- Measuring and Managing the Value of Companies, 3rd
edn (New York, Wiley, 2000).
30. J. Hand, ‘The Role of Accounting Fundamentals, Web Traffic, and Supply and Demand in the
Pricing of U.S. Internet Stocks’, North Carolina, Working paper, University of North Carolina, 2000.
31. J. Pallant, SPPS Survival Manual (Milton Keynes, Open University Press, 2001).
32. See for example, P. Ghauri, K. Gronhaug & I. Kristianslind, Research Methods in Business Studies
(London, Prentice Hall, 1995).
33. See, for example, J. Foster, Data Analysis using SPSS for Windows, (London, Sage) 1999.
34. Ghauri et al., op. cit., Ref. 32.
35. See M. Saunders, P. Lewis P & A. Thornhill, Research Methods for Business Students, 2nd edn (London,
Pearson Education, 2000).
36. S. Basu, ‘The Relationship Between Earnings Yield, Market Value, and Return for NYSE Common
Stocks: Further Evidence’, Journal of Financial Economics, 12, 1983, pp. 129–156.
37. M. Statman, ‘How Many Stocks Make a Diversified Portfolio’, Journal of Financial and Quantitative
Analysis, 22, 3, 1987, pp. 353–364.
38. Hand, op. cit., Ref. 30.
39. M. Pendlebury & R. Groves, Company Accounts, Analysis, Interpretations and Understanding, 5th edn,
(London, International Thomas Business Press, 2001).
40. L. Gross, The Art of Selling Intangibles: How to Make Your Million Dollars by Investing Other People’s Money
(New York, New York Institute of Finance, 1982).
41. S. Besley & E. Brigham, Essentials of Managerial Finance, 12th edn (New York, The Dryden
Press, 2000).
42. Shefrin, op. cit., Ref. 5.
43. Schumpeter, op. cit., Refs 1 and 2.
44. S. Cleland, & J. Eade, ‘Follow the Money to Wall Street’s Big Secret’, Financial Times, 9 October
2002, p. 23.
45. For example, Hand, op. cit., Ref. 30; King, op. cit., Ref. 7.
46. Ibid.
47. W. Jahnke, ‘Valuing New Economy stocks’, Journal of Financial Planning, 13, 6, 2000, pp. 46–49.
48. Rosenberg, op. cit., Ref. 10.
49. Fromlet, op. cit., Ref. 15.
 Bursting the dot.com ‘Bubble’ 135
Appendix A: List of tickers and names for the 169 Internet companies used
in this study
E-Commerce/Products E-Marketing/Information
1. ASFD ASHFORD.COM INC 44. ACRU ACCRUE SOFTWARE
2. BFLY BLUEFLY INC 45. APTM APTIMUS INC
3. BGST BIGSTAR ENTERTAINT 46. AVEA AVENUE A INC
4. BNBN BARNESANDNOBLE 47. BFRE BE FREE INC
5. BUYX BUY.COM INC 48. CBLT COBALT GROUP
6. BYND BEYOND.COM CORP 49. CLAC CLICKACTION INC
7. COOL CYBERIAN OUTPOST 50. DCLK DOUBLECLICK INC
8. CTAC 1-800 CONTACTS 51. DRIV DIGITAL RIVER
9. EGGSQ EGGHEAD.COM INC 52. DTAS DIGITAS INC
10. FASH FASHIONMALL.COM 53. EPNY E.PIPHANY INC
11. FLWS 1-800-FLOWERS 54. FIRE FIREPOND INC
12. GSPT GLOBAL SPORTS 55. JMXI JUPITER MEDIA
13. HITS MUSICMAKER.COM 56. LNTY L90 INC
14. IGOC IGO CORP 57. LVWD LIVEWORLD INC
15. KTEL K-TEL INTL 58. MMPT MODEM MEDIA INC
16. MBAY MEDIABAY INC 59. MPLX MEDIAPLEX INC
17. NWKC NETWORK 60. NCNT NETCENTIVES INC
COMMERCE 61. NETP NET PERCEPTIONS
18. PDEN PET QUARTERS INC 62. PRMO PROMOTIONS.COM
19. PPOD PEAPOD INC 63. TFSM 24/7 MEDIA INC
20. SPNT SHOPNET.COM INC 64. THDSE 3DSHOPPING.COM
21. STMP STAMPS.COM INC 65. VCLK VALUECLICK INC
22. THIN NUTRI/SYSTEM INC
Internet Content—Entertainment
E-Commerce/Services 66. ADBL AUDIBLE INC
23. BPNT BARPOINT.COM 67. AHWYQ AUDIOHIGHWAY.COM
24. CYTY CYTATION CORP 68. ALOY ALLOY ONLINE
25. EBAY EBAY INC 69. HOLL HOLLYWOOD MEDIA
26. EBNX EBENX INC 70. MDM MEDIUM4.COM INC
27. ELOT ELOT INC 71. MPPP MP3.COM INC
28. ESTM E-STAMP CORP 72. NETRC NETRADIO CORP
29. EXPE EXPEDIA INC—A 73. NMUS NET4MUSIC INC
30. GEPT GLOBAL E-POINT 74. NTXY NETTAXI INC
31. HHNT HEADHUNTER.NET 75. PNJA PANJA INC
32. HLTH WEBMD CORP 76. POPM POPMAIL.COM INC
33. HOMS HOMESTORE.COM 77. SALN SALON MEDIA GRP
34. HOTJ HOTJOBS.COM LTD 78. SDRV STARDRIVE SOLUTI
35. IPRT IPRINT TECH 79. SPLN SPORTSLINE.COM
36. MCYC MCY.COM INC 80. SSTR SILVERSTAR HLDGS
37. MDLI MEDICALOGIC/MEDS 81. TEEE GOLF ROUNDS.COM
38. MED E.MEDSOFT.COM 82. TGLO THEGLOBE.COM INC
39. PCLN PRICELINE.COM 83. VDAT VISUAL DATA CORP
40. RTRN RETURN ASSURED
41. SWBD SWITCHBOARD INC Internet Content—Information/News
42. TMCS TICKETMASTER-B 84. ABTL AUTOBYTEL.COM
43. TMPW TMP WORLDWIDE 85. ADAM ADAM INC
136 P. R. Wheale & L. Heredia Amin
86. AMEN CROSSWALK.COM 127. DIGX DIGEX INC
87. ARTD ARTISTDIRECT INC 128. ECLG ECOLLEGE.COM INC
88. ASKJ ASK JEEVES INC 129. EGOV NATL INFO CONSOR
89. CLKS CLICK2LEARN INC 130. EXDS EXODUS COMM INC
90. CNET CNET NETWORKS IN 131. FNT FRONTLINE COMM
91. EDGR EDGAR ONLINE INC 132. GBIX GLOBIX CORP
92. GLBN GLOBALNET FINL 133. ICCX INTERNET COMM &C
93. HCEN HEALTHCENTRAL.CO 134. INIT INTERLIANT INC
94. HGAT HEALTHGATE DATA 135. INLD INTERLAND INC
95. HGRD HEALTH GRADES 136. ISLD DIGITAL ISLAND
96. HMSK HOMESEEKERS.COM 137. MACR MACROMEDIA INC
97. HOOV HOOVERS INC 138. MIGS MCGLEN INTERNET
98. HPOL HARRIS INTERACT 139. NAVI NAVISITE INC
99. HSTM HEALTHSTREAM INC 140. NNCI NETNATION COMM
100. IIIM I3 MOBILE INC 141. NPSC NEW PARADIGM SOF
101. IMPV IMPROVENET INC 142. PSIX PSINET INC
102. INFO INFONAUTICS INC 143. RCOM REGISTER.COM
103. INSP INFOSPACE INC 144. SITN SITI-SITES.COM
104. INTM INT MEDIA GROUP 145. TSCN TELESCAN INC
105. IVIL IVILLAGE INC 146. VRSO VERSO TECH
106. KNOT KNOT INC (THE)
107. KOOP DRKOOP.COM INC Web Portals/ISP
108. LOOK LOOKSMART LTD 147. ARDT ARDENT COMM
109. LTWO LEARN2.COM INC 148. ATHM AT HOME CORP
110. MKTW MARKETWATCH.COM 149. BIZZ BIZNESSONLINE.CO
111. MLTX MULTEX.COM INC 150. CYCO CYPRESS COMM INC
112. ONES ONESOURCE INFORM 151. ELNK EARTHLINK INC
113. PASA QUEPASA.COM 152. EWEB EUROWEB INTL
114. SNOWC SNOWBALL.COM INC 153. FSST FASTNET CORP
115. SRCH US SEARCH.COM 154. FUTR IFX CORP
116. TSCM THESTREET.COM 155. GEEK INTERNET AMERICA
156. GOTO GOTO.COM INC
Internet Financial Services 157. HEAR HEARME
117. EBDC EBANK.COM INC 158. HYPD HYPERDYNAMICS CP
118. EELN E-LOAN INC 159. JWEB JUNO ONLINE SERV
119. ESPD ESPEED INC-CL A 160. LOAX LOG ON AMERICA
120. FNCM FINET.COM INC 161. NTWO N2H2 INC
121. INSW INSWEB CORP 162. NZRO NETZERO INC
122. NTBK NET.B@NK INC 163. PRGY PRODIGY COMM-A
123. ORCC ONLINE RES CORP 164. PSCO PROTOSOURCE CORP
124. QUOT QUOTESMITH.COM 165. SOFN SOFTNET SYSTEMS
166. SPDE SPEEDUS.COM INC
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