Question

Why is it more difficult for a company to raise capital in a bear market than in a bull market?

Answer 1

A bear market is a market situation where the economy is weak and most stocks are declining in value. In the bear market, the market sentiment is negative and thus the investors look to sell the stocks than buy. It is difficult for a company to raise capital since as many equities lose value and prices are volatile. Since the investors find it dangerous to invest in, it is difficult for the companies to sell the stocks in the market. In the bearish market the demand will be lower than supply then the share prices will fall. Investors will move to fixed-income securities, than stocks. Moreover, in a weak economy, businesses are unable make huge profits and this will directly affects the value of stocks. In short it is not easy for the companies to raise capital in the bear market.