Marketing Efficiency and the Choice of Capital Structure: A Panel Data Study of Indian FMCG Companies

Abstract

This paper studies the impact of marketing efficiency on capital structure decisions of Indian fast-moving consumer goods (FMCG) companies using firm-level panel data from 2013 to 2023. Based on secondary data from CMIE Prowess and company disclosures, we use fixed effects models to investigate if differences in the effectiveness of marketing investment, as measured by the ratio of marketing expenses to sales, are significantly related to leverage. The above findings imply that there is a negative relationship between marketing efficiency and the utilization of debt financing, which means that high-return marketing firms are more conservative in financing by using their own funds for business operations. Our findings extend the literature on the marketing-finance interface in emerging markets into the more nuanced domain of brand name capitalization and related accounting practices and provide strategic implications for CFOs and brand managers in capital-constrained markets.