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This study investigates the determinants of capital structure for a sample of 22 firms listed on the Nairobi Stock Exchange during the period 1991-1999. Reduced form equations derived from the static trade-off model and the pecking order hypothesis are estimated and tested using panel data techniques. The results show that a pecking order model with an adjustment process cannot be rejected. Specifically, it is found that the main determinants of capital financing behaviour consist of information asymmetries, non-debt tax shields and local capital market infrastructure.Nairobi Stock Exchange, static trade-off model and pecking order hypothesis,

The paper analyses the impact of liberalization on two key and interrelated markets in Kenya, the ®nancial and the foreign exchange markets. It is shown that the in¯ation pro®le changes with exchange rate policy, interest rates have not been market determined even after liberalization, interest rate spreads have increased with liberalization, a re¯ection of ineciency in the ®nancial market, while foreign and domestic interest rate dierential and short-term speculative capital in¯ows aect the real exchange rate. The policy con¯ict of targeting a competitive exchange rate and low in¯ation with interest rate as the only instrument is shown to lead to a policy dilemma and to complicate macroeconomic management in the 1990s in an environment where ®scal adjustment has not taken place. Adjustment and Liberalization inKenya 467 R 2 0.951 F37Y 57 29.86 0.000 sXeX 0.0086Y AR 1±5 F5Y 52 1.067 0.389Y ARCH 1±4 F4Y 49 0.2581 0.9033Y Normality x 2 2Y 1.424 0.4906Y RESET F1Y 56 0.0075 0.9314X The tests are AR for serial correlation (autoregression structure) of the residuals, ARCH (autoregressive conditional heteroscedasticity) to test of the heteroscedasticity of residuals, normality test whether the residuals follow a normal distribution and the RESET test is a regression speci®cation test to test whether the linear assumption of the regression equation is valid. Their probability values are attached in brackets.

No abstract