The Mistaken Identity: Debt Versus Equity: The Kenyan Perspective

Abstract

Debt has always been perceived as expensive compared to equity, many people, especially businessmen havealways assumed that debt is more expensive to equity, however going through literature and theories it is clearthat this has been the most mistaken identity, according to pecking order theory, firms would first of all preferinternals funds, followed by debt and lastly followed by equity, thus according to the Myer’s Pecking ordertheory, equity is less preferred than debt and internal funds are preferred more to debt. Thus as per the order ofpriority, Debt is preferred to equity, and equity according to the theory is more expensive in the long run to debt,the reasons being the tax advantage given to debt holders among others .Keywords: Pecking order theory, debt, equity