ROLE OF FUNDAMENTAL VARIABLES IN EXPLAINING STOCK PRICES: INDIAN FMCG SECTOR EVIDENCE
Keywords:
Stock prices, fundamental variables, value relevance, dividend policy, capital structureAbstract
The paper attempts to investigate the value relevance of major corporate financial variables in the context of Indian FMCG companies using price level based approach. Using a cross section of BSE FMCG firms over the 2001-2010 period, the study empirically determines the extent to which stock prices are supported by fundamentals in Indian FMCG companies. The results of this study indicate that fundamental variables play an important role in stock pricing in Indian FMCG companies. The study provides support for the value relevance of dividend and investment policy suggesting that earnings distributed as dividends have a greater impact on firm value than does earning retained within the firm confirming the signaling effect of dividend policy. The study finds that dividend policy and investment policy are value relevant and helps provide a signal regarding the market information not contained in accounting publications. The study however fails to establish the value relevance of capital structure in Indian FMCG sector context.
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