Corporate debt and equity issuance soared - adding almost $ trillion in new debt and equity to the balance sheets of nonfinancial corporations from 1998 through 2000 alone, with a good portion of the money raised by risky firms in the junk bond, venture capital, and initial public offering (IPO) markets.
Firms used the proceeds not only to fund investment, but also to finance acquisitions of other companies, stock repurchases, and operating expenses. The spectacular collapse of high-tech equity valuations in the spring of 2000, led by the same telecommunication and Internet firms, wreaked havoc with corporate credit quality in some sectors and began a prolonged retrenchment in financial markets.