2. Literature Review: Capital structure is defined as an important area in financial decision making. It has a relationship with other financial decision variables. The capital structure is composed of debt and equity capital used by organizations to manage their operations. The debate on capital structure was started after the presentation of the theory of irrelevance by Modigliani and Miller. Modigliani and Miller (1958) concluded that financial leverage has no effect on the market value of the firm. However, the theory is based on some assumptions that do not exist in the real world. The hypotheses are perfect capital markets, no taxes, homogeneous expectations and no transaction costs. But results may be different if there are bankruptcy costs and tax shelter treatment of interest payments that impact the cost of capital. Modigliani and Miller (1963) revised their previous theory to include textual benefit as a determinant of capital structure. They called interest paid on debt a tax-saving tool. The term is known as a tax shield in finance and reduces the taxes paid by the business. Brealey and Myers (2003) were of the view that capital structure selection is fundamentally a marketing problem. They further explained that the company can issue many different securities in numerous combinations, but tries to find the specific combination that capitalizes on the market value of the company. In this regard their argument is that financial managers try to find the combination that increases the market value of the firm. They further argued that a strategy that capitalizes on firm value also maximizes shareholder wealth. In this regard it can be deduced that the financial director's attention...... middle of paper ......on American industrial companies. The Pecking Order hypothesis predicts that companies sell their shares only when the market has overvalued them (Myers, 1984). The basis of the theory is that managers want to provide benefits to existing shareholders. They are not willing to issue shares at a price lower than their actual value. It can be concluded that new shares will be issued only when the market is willing to pay a higher price than the actual value of the shares. Therefore, it gives a signal to investors that a company is overvaluing its capital. Myers and Majluf (1984) find that companies prefer internal rather than external sources which have more costs than internal ones. Therefore, in light of the pecking order theory, it is deduced that enterprises with higher profits will use equity financing mode and enterprises will use debt financing which generate low profits..