It’s gut-check time for CEOs. As the credit crunch threatens to become a global downturn, corporate leaders have a choice: pull in their horns and ride out the storm or look for opportunities to pick up bargain-basement assets that will help them grow and create future value for shareholders. If past is prologue, more will follow the first course—which is a mistake.

Our research indicates that although most executives know and pay lip service to the maxim “Invest in a downturn,” few act on it. For our recent book, The Granularity of Growth,¹ we created a database of roughly 200 global companies and decomposed the most important sources of growth (market momentum, mergers, and share gains), not just for each company, but also for finer-grained market segments. Then we identified segments that had experienced significant upturns or downturns and looked at the strategies companies adopted during those periods.² Finally, we computed each company’s total returns to shareholders so we could compare performance across growth sources, segments, and strategies.

Two sets of results stuck out. First, of the potential strategic moves companies can take to grow in a downturn—divest, acquire, invest to gain share—an effective acquisition strategy (defined as growth through M&A at a rate higher than that of 75 percent of a company’s peers) created significant value for shareholders. During an upturn, on the other hand, divestments created slightly more value than acquisitions did.

Second, companies often behave in counterproductive ways (exhibit). Fewer than half as many companies in the segments we studied made acquisitions in downturns rather than in periods of economic growth. Significantly more divested businesses in those market segments in downturns than in upturns.

All of this is understandable. As revenues slow and margins are squeezed, management naturally switches its focus to cutting costs and maintaining earnings. The company protects its balance sheet—an approach leading to the deferral of growth and of low-priority investments, the shelving of large acquisitions, and the sale of assets. Many companies simply freeze: 60 percent of those in our database made no portfolio moves at all in downturns, compared with only 40 percent that made no moves in upturns.

The best growth companies take a different approach. They view a downturn as a time to increase their leads and make acquisitions. They pounce on the opportunities it creates with an alacrity that is the stuff of legends: think of GE’s speedy dispatch of an army of deal makers to Asia after the financial markets took a downturn in 1998.

We’re not saying companies should go on a spending spree in a downturn and tighten their belts in an upturn. Nor are we unaware that some companies simply aren’t in a financial position to exploit the opportunities downturns present. But for large numbers of healthy companies and their CEOs, we hope our research findings are a useful counterweight to the natural tendency, which is likely to harm shareholders. Simply put, countercyclical investment can separate the leaders from the also-rans. Arguments that growth is risky in a downturn overstate the case.