The legacy of the dot-com bubble: Financial lessons on speculation and fundamentals

Muhammad Arsalan Khan; Sigit Kurnianto; Atiqa Malik

doi:10.31106/jema.v21i2.22860

Authors

Muhammad Arsalan Khan Department of Accounting, Faculty of Economic and Business, Universitas Airlangga, Surabaya
Sigit Kurnianto Department of Accounting, Faculty of Economic and Business, Universitas Airlangga, Surabaya
Atiqa Malik Department of Management, Faculty of Economic and Business, Universitas Airlangga, Surabaya

DOI:

https://doi.org/10.31106/jema.v21i2.22860

Keywords:

Total Sales, Net Income, Total Debt, Total Assets, Stock Price, Bubble, Recession

Abstract

The dot-com bubble burst in the early 2000s marked a pivotal moment in financial market history, revealing the dominance of speculative investment behavior over traditional financial fundamentals. This study revisits the dot-com bubble era, focusing on the relationship between key financial metrics (total sales, total assets, net income, total debt, and share price) during a period of intense market speculation. By analyzing these fundamental indicators, the study provides insights that are still relevant modern speculative trends driven by technologies like AI, blockchain, and the metaverse. Examining 30 U.S. companies during the dot-com bubble (1995–2001) and its aftermath (2001–2011) using multiple regression analysis and the Wilcoxon test, we find that total sales, net income, and total debt positively influenced share prices, while total assets had a negative impact. These findings suggest that investor optimism prioritizes growth, profitability, and aggressive financing during speculative periods over traditional indicators like asset size, which are often associated with slower-moving business models. The Wilcoxon test further reveals significant differences in median stock prices between the bubble and post-bubble periods, underscoring the valuation shifts driven by speculative and fundamental factors. By examining historical market behaviors, this study highlights the lasting importance of aligning speculative enthusiasm with financial fundamentals, providing valuable lessons for understanding speculative markets.

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