Question

Who would be hurt financially by another U.S. financial crisis?

Provide justification on who would get hurt the worst to the least. Government, private, public companies, etc. Thank You.

Answer 1

Another U.S. financial crisis, if it were to occur, will hurt the private companies the most. This is because private companies are smaller in size and scale when compared to public companies. During the times of a financial crisis and the aftermath of a financial crisis leads to a dilution of consumer confidence. As economy slips into recession the disposal income in the hands of the consumer’s declines and the consumers cut their discretionary spending and focus only on buying the necessities. This is where the private companies are affected. The private companies are mostly U.S. based and hence their business model is exposed to risks related to the U.S. economy. Any financial crisis will lead to recessionary forces to come into play and this will negatively impact the valuation of private companies, their top-line as well as their bottom-line.

In terms of who will get hurt the least the public companies will get hurt the least (on a relative basis). Public companies have large scale and size and their businesses and operations are spread in different countries outside the U.S. Thus a part of their business and operations that are present in other countries are partly insulated (as they are not directly affected) from the financial crisis. Secondly during financial crisis the government increases their spending so as to propel the economy and create more capital. This directly benefits the public companies as they are able to develop a robust pipeline in terms of new orders.