Middle-East Journal of Scientific Research 21 (9): 1419-1425, 2014 ISSN 1990-9233 © IDOSI Publications, 2014 DOI: 10.5829/idosi.mejsr.2014.21.09.831 Corresponding Author: Zeeshan Fareed, MS scholar, Department of Management Sciences, CIIT, Sahiwal, Pakistan. 1419 The Effect of Firm Specific Factors on Capital Structure Decision: Evidence Frompower and Energy Sector of Pakistan Zeeshan Fareed, Bushra Zulfiqar and Farrukh Shahzad 1 2 3 Department of Management Sciences, 1 CIIT, Sahiwal, Pakistan University of the Punjab, Lahore, Pakistan 2 Hailey College of Commerce, 3 University of the Punjab, Lahore, Pakistan Abstract: This study investigates the effect of firm specific factors on capital structure decision (leverage)for a sample of 19 firms of power and energy sector of Pakistan. The secondary data is extracted from the “Balance sheet analysis” for the period of 2001-2012 of the 19 firms which are listed on Karachi stock exchange. Generalized least square method, correlation analysis are employed on panel data and results revealed that profitability having negative and significant relationship with leverage while tangibility positively related with leverage but not significant. Firm size and firm growth both are also positively related with leverage and also significant.Our results also show that large firms do long term financing through debt as compare to small firms of power and energy sector. Key words: Profitability Firm size Firm growth Leverage Pakistan INTRODUCTION preferred stock and retained earnings while debt is The several financing decisions have a vital and are debentures, bonds and long term note payable. crucial role in the financial welfare/well-being of a Second, short term debts which are short term bank loans business. Capital structure includes issuance of debt, and short term account payable etc. firms may issue equity and hybrid securities in a manner to finance its hybrid securities which have characteristics of both debt assets, organized operations and expected growth. and equity. Capital structure is a mix of debt and equity as Company obtains equity from issuance of common stock, shown in following figure: classified into two categories. First, long term debts which