Assessment of the adoption of the pecking order theory in small and medium enterprises sector in Kenya
The Small and Medium Enterprises (SME) sector is undoubtedly an important element of Kenya‟s economy. The main objective of this research was to establish the extent to pecking order theory has been adopted in the SME sector. In addition this research sought to identify challenges and reasons as to why different sources of finance have been opted for SMEs in Kenya. The research was conducted in Kenya in 2012 and involved data collection from 54 SMEs through the use of questionnaires. The SMEs were drawn from manufacturing, Service, Commerce and trade and other industries. The results of the research show that SMEs practice pecking order theory with skewness towards cheaper funds, i. e. 1.internal equity and donations, then,2. friends contribution before opting for,3. debts. The reasons found ranged from high interest rates offered by financial institutions to default procedures employed by the same institutions. There need to inform the SME sector of the benefits of debts as a source of capital.