Effect of Determinants on Financial Leverage in FMCG Industry: An Empirical Study of Capital Structure Prior to COVID-19

Abstract

FMCG stands for fast-moving consumer goods industry, also known as consumer packaged goods, which refers to an industry engaged in the production of packaged food, cosmetics, household goods and other readily consumable items. This industry’s main characteristics reveal frequent purchases by consumers, high inventory turnover and a short shelf life. The FMCG industry is the fourth-largest sector in the Indian economy. This study is aimed at understanding the capital structure financing and investigating the relationship between the capital structure determinants and financial leverage of NIFTY FMCG companies from the year 2000 to 2018, prior to the COVID-19 breakdown health emergency. It has been stated in the World Bank report for 2019 that India is the seventh largest consumer market in the world, which includes elements like private consumption, investments and exports, thus encouraging the study of the capital structure of FMCG companies to be conducted. It is postulated that the capital structure determinants are profitability, growth opportunity, size, risk, non-debt tax shield, liquidity and asset structure. It is believed that liquidity is expected to play an important role as a capital structure determinant. Thus, an approach is developed to investigate the impact of capital structure determinants on the debt ratio of FMCG firms in the light of capital structure theories.