Default Would Kneecap Investor Confidence: Survey

CAQ Study Finds That Confidence Would Drop to Historic Lows if Debt Ceiling Not Raised

In what should be troubling news for publicly traded communications businesses large and small, a just-released study found that investor confidence in the capital markets would fall to a historic low of 39% if Congress does not raise the debt ceiling by the Oct. 17 deadline and defaults on some of its obligations.

The Center for Audit Quality (CAQ) had conducted a survey just before the shutdown that showed that 69% of investors had confidence in the capital markets, and a record 79% had confidence in investing in publicly traded companies. But the center was forced to circle back after the government shutdown and in the face of the looming debt ceiling issue.

Congress has yet to come to an agreement on a bill to raise the ceiling, not to be confused with its inability to come to terms on a bill to fund the government, which led to the current government shutdown.

"We've not seen investor confidence in the U.S. capital markets fall below 60% in the seven years we've conducted our survey, including in 2008 at the height of the financial crisis," said CAQ executive director Cindy Fornelli. "Staring at the real possibility that confidence dips to 39% if the U.S. defaults should be an incentive for policymakers to resolve this situation."

The shutdown has not had a marked effect, according to the follow-up survey. Confidence in the markets holds steady at 69% if it remains a short-term shut-down, but if it goes on much longer, that drops to about 60%.

The follow-up survey was of 424 investors conducted Oct. 3-6. It has a margin of error of plus or minus 4.8%. The original study was of 1,013 investors conducted Aug. 14-20. The margin of error is plus or minus 3.2%.

CAQ comprises representatives from public company auditing firms, the American Institute of CPAs, and three independent members. It's goal is to foster investor confidence in the capital markets.