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2020•SSRN Electronic JournalOpen access

Does Pecking Order Theory Hold Among Kenyan Firms?

Douglas M. Wanja, Peter Muriu

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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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What this paper is about

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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Available 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.

Key concepts: Pecking order theory, Pecking order, Capital structure, Debt, Order (exchange), Kenya, Monetary economics, Economics

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