Winrose Jepkemboi

It is hypothesized that pecking order theory adequately describes financing decisions of firms in emerging economies. The study population comprised of listed companies in Kenya. The study population comprised of thirty six (36) listed companies in Kenya.  A sample of 33 companies was drawn from the population using a combination of stratified and simple random sampling techniques. The study utilized longitudinal research design and quantitative measurement of variables. Secondary data was obtained from Nairobi Stock Exchange and Capital Markets Authority. A pooled regression model was used to carry out an empirical analysis of the variables. In the model, financing decisions is represented by incremental debt and equity with debt taking precedence over equity. Further, financing deficit is represented by the sum of incremental capital expenditures; cash dividends paid; working capital less internally generated funds (Retained Earnings). Findings indicate a constant of (-4.83) and a deficit coefficient (1.1415) is statistically significant and poles apart from one. Further, the variable for the cumulative deficit has a negative sign which suggest that the greater the deficit the less leverage a firm uses. This result is inconsistent with the pecking order hypothesis. Firms listed in Kenya finance their deficit mainly with equity and issue equity much more often than would be expected under this hypothesis. However, inclusion of the agency costs, information asymmetry and cumulative deficit caused the R2 of the equation to change much (From 0.6504 to 0.9926). The R2 increased since according to the pecking order hypothesis they are the main determinants. Further research could be conducted for all the listed firms and to investigate the role of NSE in developing the Kenyan economy, significant in the area of the market efficiency and the corporate financial decisions. This would make the results of this study more effective; and also provides empirical investigation to the difference that might exist between the capital structure of financial firms and non financial ones.