Home improvement companies are taking a hit as the global financial crisis deepens.
The S&P 500 and Dow Jones Industrial Average fell almost 3% and 3.6%, respectively, on Tuesday.
The Nasdaq Composite Index fell 1.5% and 2.3%, while the Russell 2000 Index lost 0.5%.
A lot of companies were downgraded, including home improvement firms.
“This has been a bad time for companies to be selling stock, and there are a lot of concerns about their ability to repay debt,” said Steve Johnson, an analyst at PNC Financial Services.
“If you’re a company that has an outstanding balance sheet and you don’t have any cash on hand, that could put you in a very tough spot.”
A home improvement company that did not have cash on its balance sheet is subject to scrutiny by the government for any money it owes to investors.
Investors who bought shares in the company are required to sell the shares in full before the government can impose penalties or seize assets.
But with the government’s crackdown on home improvement companies, the companies may not be able to repay investors’ money in full and will be subject to further government restrictions.
“There’s some real concern about the sustainability of these companies and their ability or willingness to get their businesses back on track,” said Mr Johnson.
According to the Home Builders Association, the number of companies that are under investigation for possible fraud or mismanagement has tripled in the last five years.
This is because regulators have begun looking into how they manage their finances.
One of the largest is the Home Depot chain of companies.
It has been under scrutiny by regulators since 2013 when it admitted to falsifying data and misleading investors about its performance in a major overhaul of its mortgage products.
In the wake of the Home Buyers Association’s allegations, Home Depot changed the way it was operating, but the company has been fined more than $200 million for mismanagement.
Another company that was under investigation was Home Depot Home Improvement.
Its CEO and CFO, Greg Allen, resigned in February this year and was replaced by CEO Andrew Tullock.
A third company that could face scrutiny by government regulators is home security company CSC.
CSC was fined $100 million in 2012 for misleading investors in the mortgage market.
Last month, the company agreed to pay a $2.5 million fine and agreed to make a $20 million cash payment to the Securities and Exchange Commission.
All three of these home improvement businesses are in the process of being investigated by the Securities & Exchange Commission for possible manipulation.
Many of the firms were once valued at billions of dollars.
However, the markets for home improvement have been downgraded in recent months due to the financial crisis.
Companies like Home Depot, Home Improvement and CSC have been losing money for the last two years and are under pressure to find more cash to pay back investors, but many of them are struggling to raise money to cover their debt.
Some investors have been taking out mortgage loans to cover the cost of the losses.