Testing the trade-off theory and the pecking order theory of capital structure in Kenya's listed firms
Karani, Silingl Linda
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The static trade-off and pecking order models are tested on a sample data of 19 Kenyan firms listed on the Nairobi stock exchange for the period 2006-2016. Empirical results prove that both models can explain some part of the capital structure. The static trade-off model shows that firm leverage is affected by several determinants, and the pecking order model displays similar movements between the change of long-term debt and financial deficit. However, both models have short comings. The static trade-off model fails to explain the differences across sectors and the pecking order model fails to explain the low deficit coefficient.