Prior research shows that accounting information is relevant for stock valuation, failureprediction, performance evaluation, optimal contracting, and other decision-making contexts inrelatively stable market settings. By contrast, accounting’s role during stock market bubbles suchas those involving a revolutionary emerging technology is the subject of considerable debate,and prominent market observers have alleged that outdated and flawed accounting practicescontributed to the crash of the Internet-led high-tech bubble of the late 1990s. We addressthe issue of whether accounting data is informative in a stock market bubble by examiningits failure prediction ability in the context of Internet IPOs, one of the most egregious andeconomically significant sectors of the high tech bubble. Our setting of young start-up firms isone in which there is relatively little room for managerial discretion with respect to accountingaccruals; Internet firms’ accounting earnings closely approximate operating cash flows. Yet incontrast to widespread criticisms of accounting and its alleged role in fueling the bubble, wefind that accounting variables are highly informative for failure prediction; specifically, they aresignificant in explaining ex post realized Internet IPO failures. Using an existing IPO failureprediction methodology and two alternative definitions of innovative IPOs, we further showthat ex ante, out-of-sample Internet IPO failure forecasts are associated with economically andstatistically significant hedge returns. Our analyses suggest that the traditional financial reportingsystem could serve as an anchor during speculative bubbles.