(1) Introduction There are three main theories of capital structure that have materialized from reflections on the first static tradeoff theorem of Modigliani and Miller (MM) (1958 ), on agency cost theory and pecking order theory. This study is undertaken in the perspective of Pakistan. The phenomena developed by MM on market perfection under the critics under the gaze of the cited theories. The Pecking Order model is a component of capital structure was developed by Myers CS et al 1984. It states that companies prioritize their source of financing in decreasing order (from retained earnings to new shares) internal funds are used first by retained earnings, from depreciation, and when these are exhausted, debt is issued, and when it makes no sense to issue more debt, equity is issued as a last resort. Due to information asymmetry, the organization's “information effect” changes behaviors towards capital structuring, positive investment opportunities should be financed through available financial slack or through debt financing is a more valuable mix of capital structuring (Myers CS et al 1984). Support persistent dividend policies to generate internal funds capable of financing investment opportunities. This theory holds that firms maintain a hierarchy of financing sources and prefer internal financing when available, and debt is preferred to equity if external financing is needed. According to the hierarchical order, the company has not well defined the optimal debt/GDP ratio due to information asymmetry, the company adopts a hierarchical order of financing preference, the first priority is internal financing if companies need to external financing through safe debt, equity financing with risky debt is only used as a lost asset Myers CS et al 1984.Every small, large company invests to maximize......middle of paper......ISSN 1450- 2887.Modigliani. F. and Miller. M.1958, “The cost of capital. Corporate finance and investment theory”, The American Economic Review. vol. 48. Raj Aggarwal and N. Aung Kyaw. January 2006, “Leverage, Investment Opportunities, and Firm Value: A Global Perspective on the Influence of Financial Development.” Shyam-Sander. L. and Myers. SC1999, “Testing Static Tradeoffs with Pecking Order Models of Capital Structure,” Journal of Financial Economics. vol. 51.219 – 244.1999.Stewart C. Myers. 1984, "The capital structure puzzle", The Journal of Finance, vol. 39, no. 3.Wolfgang Bessler,W. Drobetz,ye Matthias C. Gruninger. 2008, “International Tests of Pecking Order Theory.”Xueping Wu. Zheng Wang.2004, "Equity Financing in a Myers-Majluf Framework with Private Benefits of Control", Journal of Corporate Finance 11 (2005) 915– 945. 22