A study on the capital structure determinants of FMCG companies in India
Abstract
Fast Moving Consumers Goods (FMCG) sector is the fastest and the fourth largest sector of the Indian economy. This study attempts to identify the critical factors affecting the financing decisions of 15 FMCG companies using panel framework and tries to investigate whether the factors considered provide convincing explanation as per the capital structure models like peking order theory, trade-off theory and Agency theory developed over a period of time. The data are collected from CMIE Prowess database for the period 2008 to 2019. The variables considered are profitability, size, non-debt tax shield, tangibility, uniqueness, liquidity and origin. It is found that Pooled OLS is the appropriate model for explaining the factors influencing the short-term debt, long-term debt and total debt as the dependent variables. It is evident that the short-term debt of the company is influenced by profitability, non-debt tax shield and liquidity of the company; the long-term debt is influenced by profitability, tangibility and origin of the company; and the total debt is affected by profitability, size and liquidity of the company. The factors which are significant confirm to the expected behavior with respect to pecking order theory of capital structure.
