An investigation of corporate financial strategies used by banking institutions during the hyper-inflationary period in Zimbabwe

Abstract

The corporate investment and financing decision plays a pivotal role in the financial management of firms operating under any economic environment. This paper investigates and analyses corporate financial strategies employed by banking institutions during the hyperinflationary period in Zimbabwe. Descriptive statistics are employed and the results show that activity was high in the market for corporate control between 1997 and 2007. Despite economic meltdown and inflationary trends, evidence suggests that the banking industry in Zimbabwe recorded a phenomenal increase in public listings during the same period. Other capital raising activities like venture capital funding, rights issues and debt finance have also been extensively used by the banking industry. Dividend policy amongst most banking institutions showed a significant decline towards 2007 as banks sought to retain funds to sustain operations. These findings provide a view that firms follow a life cycle in the determination of the optimal investment and financing decisions even when operating in an uncertain environment. The paper concludes by suggesting several strategies to improve financial soundness of banks operating in an inflationary environment.