Companies are increasingly betting on the future and trying to take control of their business models, said Robert Ritchie, chief executive officer of Ritchie Asset Management.
Companies can’t just sit on their hands forever, he said.
They have to do something, and it can be as simple as a change of ownership.
That’s when the stock markets go belly up, Ritchie said.
For some companies, that means selling off their core businesses or cutting their workforce.
But even then, they have to pay a price, said David J. Condon, a chief economist at the investment firm J.P. Morgan Chase & Co. that specializes in companies that are more than $1 billion.
The cost of a stock-market bailout can be substantial.
For example, in 2012, the Dow Jones Industrial Average fell 5.9% to 18,817, or about $1.9 trillion.
The S&P 500, the broadest gauge of U.S. stocks, fell 2.3% to 2,721, or $1,037.10.
The Nasdaq Composite lost 1.4% to 8,742, or nearly $4.3 trillion.
For companies that can’t raise money in the market, such as auto makers, it’s often more difficult to pull the trigger, said Kevin Haney, an economist at RBC Capital Markets.
The crash is more likely to happen if the company is already too big and can’t get out of its current problems, Haney said.
Companies are also often less worried about the broader economy, as many large companies have already laid off workers.
“Companies are very much looking at the economy and what they can do, not necessarily the economy as a whole, said Richard Schaeffer, chief investment officer at BlackRock Inc. and a former president of the Financial Services Roundtable.
If companies can’t find a buyer, it can affect the value of the companies they acquire. “
I think they see the opportunity to do that,” he said of the bailout market.
If companies can’t find a buyer, it can affect the value of the companies they acquire.
It’s not uncommon for companies to borrow from banks to pay for acquisitions, or for them to buy back shares from the private market, said Andrew P. McQuillan, an analyst at Goldman Sachs Group Inc. If that happens, the company could face increased competition from its competitors.
In the past, investors have paid for acquisitions by buying shares from rivals and selling them at a discount, said Peter H. Hickey, chief financial officer at Raine Capital Markets LLC, a Boston-based private equity firm that manages investments in companies.
But that has changed.
Investors have grown increasingly focused on long-term growth prospects, and companies that aren’t growing quickly can be more vulnerable to a crash, Hickey said.
“There is no longer any way to ignore a company’s business model or its ability to grow or stay afloat, if it is a business model that doesn’t pay for itself,” Hickey wrote in an email.
In recent years, companies have also been able to borrow to finance acquisitions, and some companies have been able raise money through the stock buybacks.
But Ritchie’s strategy has some experts concerned.
“In this day and age, the whole purpose of a bailout is to make money,” said Greg P. Zuckerman, an investment strategist at Sanford C. Bernstein & Murphy LLP in Chicago.
Investors are concerned that companies with weaker growth prospects will have a harder time getting the capital they need to stay in business, he added.
If the markets continue to move up, companies that have been in trouble could find it more difficult, he wrote.
Companies that can absorb losses are likely to remain strong, said Haney.
The Dow Jones industrial average fell 2,929.69 points, or 0.8%, to 17,726.85 in early afternoon trading in New York.
The Standard & ; Minutemen index lost 0.2% to 1750.62.
The NASDAQ composite lost 1% to 6,819.83.
The BATS Global Selects index of shares closed up 1.1% to 7,094.89.
The dollar index fell 0.7% to 102.47 yen.
For the year, the S&s index has risen 6.4%.
For more coverage of the market visit The Wall St. Journal’s home page.