A hyperinflationary environment causes deviation from and dismantling of corporate governance trends: case of Zimbabwe

Abstract

Proper hyperinflation detection is a clear prerequisite for effective contracting and corporate governance modeling if stakeholder value is to be preserved even in deflated terms. This paper examines how inflation, linked to other macroeconomic variables, such as interest or currency rates, can affect the company’s operating margins and cash flows, so modifying the equilibriums among different stakeholders. The paper will also demonstrate that inflation may not always be a zero sum game, with compensating winners and losers. Literature review will show that inflation has a deep impact on operating leverage and cash flows, affecting, with its volatility, the risky cost of collected capital. Inflation risk stands out as a powerful, albeit often unperceived, stakeholder wealth redistributors. The impact of inflation on economic margins and financial flows, which represent the company’s strategic key parameters, is originally presented in an intuitive way with the conclusion that inflation and corporate governance are considered linked issues. Recommendations are proffered in that prompt monitoring and resilient contractual design ease inflation risk detection and mitigation, together with proper and flexible financial modeling