Inflation, tax shields and borrowing : why is the balance sheet of the corporate sector becoming vulnerable?

The en-masse bankruptcies of many corporations in high inflation countries in recent years is attributed partially to the pre-recession high-risk financial planning. This paper elaborates on the type of considerations which govern the financial decisions of local firms in an inflationary environment and shows that the real cost of borrowing, even index-linked or hard currency funds may be very low and even negative. This might happen due to common tax laws. This phenomenon lead many business firms to prefer debt over equity financing. The analysis indicates the kind of risk assessment which South African firms might have to conduct when they formulate their credit and financial policies in high-inflation environment. Die hoe getal bankrotskappe onder maatskappye in lande wat onder groot inflasiedruk verkeer, word gedeeltelik toegeskryf aan hoerisiko finansiele beplanning voor resessie. Hierdie artikel brei uit op die tipe oorwegings wat die finansiele besluite van lokale firmas beheer in inflasionere omgewings. Dit toon dat die werklike koste van lenings, selfs van indeksverwante- en kontantfondse nog laag of selfs negatief mag wees. Dit mag toegeskryf word aan gewone belastingswette. Hierdie verskynsel lei menige besighede om skuld bo surplusbate-finansiering te verkies. Hierdie analise toon die soort van risikowaardering wat Suid-Afrikaanse firmas mag bedryf wanneer hulle krediet en finansiele beleid formuleer binne 'n hoe inflasionere omgewing.