In addition to the typical firm specific determinants, financial policies of enterprises are greatly affected by the internal governance mechanisms and some external factors. External stimulants or deterrents related to the costs and terms of financing may contribute to alter decisions of management. However, the ultimate responses to these incitements depend largely on the financial strength of enterprises and prevailing trends inside. This study examines the role played by internal governance mechanisms (board of director’s features) and an important externally injected impact i.e. of monetary policy, in affecting financial policies namely debt and dividend, of 150 KSE listed firms during 2003 to 2011. The results show that there is a significant influence of internal governance on both the policies of leverage and dividend. Monetary policy contributes effectively in determining enterprise’s decisions to finance. Moreover, when segregated into various classes, differential responses of firms are observed regarding their gearing ratios in response to monetary changes. However, study remains unable to figure out any significant influence of monetary policy on dividend decisions of Pakistani non financial firms. Supervisor:- Dr. Hasan Muhammad Mohsin