Journal of Economics and Business

ISSN 2615-3726 (Online)

ISSN 2621-5667 (Print)

Published: 13 March 2020

Does Pecking Order Theory Hold Among Kenyan Firms?

Douglas M. Wanja, Peter W. Muriu

Kisii University (Kenya), University of Nairobi (Kenya)

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10.31014/aior.1992.03.01.205

Pages: 386-397

Keywords: Pecking Order Theory, Capital structure; Financing deficit, Panel Data

Abstract

This study examined the pecking order theory of capital structure through annual data of 37 firms listed at the Nairobi Securities Exchange for the period 2011-2016. Estimation results established a positive relationship between changes in debt and investments and a negative relationship between changes in debt and cash flows. Overall, the findings suggest that financial deficits determine net debt issues and hence a strong case for pecking order theory in Kenya in explaining capital structure decisions.

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