The objective of this study is to test the impact of monetary policy on financing decisions of firms in case of Pakistan. A panel data covering a period of 14 years from 2004 -2017 for 200 listed non-financial firms in Pakistan Stock Exchange is used while fixed and random effect model allows for the individual impact and for the problem of endogeneity using GMM. Results show that the monetary policy indicator (KIBOR) is significantly and negatively affects the financing decisions of firms. Moreover results show that during tight monetary policy affects the debt ratio and this effect is weaker for large firms as compared to that in small firms because large firms more spread, have less bankruptcy risk and have more fixed assets Supervisor:- Dr. Waseem Shahid Malik Co- Supervisor:- Dr. Ahsan-ul-Haq Satti