From 1992 to 2000, the pace of merger activity rose to unprecedented levels. An environment of sustained economic growth and rising stock prices facilitated transactions. Toward the end of 2000, the economic climate shifted and merger activity in the fourth quarter declined. The economy showed only small growth during the first quarter of 2001. Excess capacity in a number of industries had developed, and sales and profit disappointments began to widen. The business cycle had returned. Valuations in Internet companies and other high-tech industries have been sharply revised downward. The pooling method of accounting for mergers is scheduled to be abolished. New challenges face business firms large and small.
