Econometric analysis of functional relationship between inflation and growth of firms in South Africa: Empirical research findings

The intention of this research is to investigate the impact of inflation and other factors have had on the growth of business firms operating in South Africa. A data set of South African firms' financial statements over the period 1983-1996 were assembled to permit a detailed examination of the impact of inflation on firms' financial performances. Employing both direct and indirect measures of inflation, it is concluded: that inflation affects growth in a negative manner; a firm's debt-to-equity, sales-to-assets, and profitability ratios are all positively associated with growth and adversely affected by high inflation; a firm's working capital-to-sales ratio is negatively related to growth and is positively affected by high inflation; and there is a real, measurable impact of the financial instabilities associated with apartheid on firm growth.