Firm Investment Behavior under Hyperinflation and Dollarization: A Case of Zimbabwe-Listed Firms


1 Department of Accounting & Finance, Botho University, Gaborone, Botswana

2 Department of Economics, University of Botswana, Gaborone, Botswana



Zimbabwe's experiences with hyperinflation (2000-2008) and dollarization (2009-2019) have implications for investment decisions. The uniqueness of these periods justifies the need for critical analysis as decisions on whether to invest are sensitive to such structural changes. Because of this, the study uses the modified Tobin's Q model to examine the main determinants of investment behavior. A dynamic and non-linear model is applied using data from a panel of 30 listed and non-financial firms from 2000 to 2016. The main determinants of investment decisions are managerial discretion or power, financial constraints, uncertainty, and access to external sources of finance. Findings are sensitive to the period of analysis and consistent with the pecking order hypothesis. Interactions between investment expenditure and other corporate financial decisions are confirmed. Policymakers need to take a differentiated approach to making investment decisions. It is desirable to develop policies sensitive to prevailing market conditions, reduce financial constraints and remove informational inefficiencies to improve the uptake of debt finance and other external funding sources. Monitoring executive decision-making power will reduce entrenchment levels and hence the agency problem. Firms should improve on future financial flexibility by taking less debt, and a dynamic investment strategy sensitive to firm size is more plausible.