2. Literature Review: Capital structure is considered an important area in financial decision making. It has a relationship with other financial decision variables. The capital structure is made up of debt and equity capital which is used by organizations to manage their operations. The debate on capital structure was launched after the irrelevance theory of Modigliani and Miller. Modigliani and Miller (1958) concluded that financial leverage has no effect on the market value of the firm. However, the theory relies on assumptions that do not exist in the real world. The assumptions are perfect capital markets, no taxes, homogeneous expectations and no transaction costs. But the results may be different in the presence of the cost of bankruptcy and the tax treatment of interest payments that impact the cost of capital. Modigliani and Miller (1963) revised their earlier theory by including text advantages as a determinant of capital structure. They called interest charges on debt a tax-saving instrument. The term is known as a tax shield in finance and reduces the tax paid by the company. Brealey and Myers (2003) were of the opinion that the choice of capital structure is essentially a marketing problem. They further explained that the company can issue many different securities in many combinations, but it tries to find the specific combination that capitalizes the market value of the company. In this regard, their argument is that financial managers try to discover the combination that increases the market value of the company. They also argued that a strategy that capitalizes company value also maximizes shareholder wealth. In this regard, it can be inferred that the attention of the financial director...... middle of paper ......on American industrial companies. The Pecking Order Hypothesis predicts that companies only sell their shares when the market has overvalued them. (Myers, 1984). The basis of the theory is that managers want to benefit existing shareholders. They are not willing to issue shares at a price lower than their true value. It can be concluded that new shares will only be issued when the market is ready to pay a price higher than the real value of the shares. Therefore, this indicates to investors that a company is overvaluing its shares. Myers and Majluf (1984) find that companies prefer internal sources rather than external sources which have more costs than internal sources. Therefore, in the light of pecking order theory, it is inferred that companies with higher profits will use equity mode of financing and companies will use debt financing which generate low profits..