The “new economy” euphoria was sowing the seeds of less positive developments even before it actually burst. It seems to have been accompanied by a rising short-termism of corporate managers, which in turn was accompanied by corporate malpractice and also pushed firms to over-invest, especially in the IT and telecommunications sector.
The subsequent large fall in equity prices and the revelation of corporate malpractice had a series of negative consequences, including an increase in leverage ratios of non-financial corporations, a decline in the value of collateral, increases in risk premia, and certain firms experiencing difficulties in obtaining external finance.