The study has been carried out with the purpose to analyze the relationship between financial leverage and firm’s investment, low-high growth firms and also constraint and unconstraint firms in the presence of certain explanatory variables; such as Tobin’s Q, cash flow, and sale etc. To identify the financial constraint and unconstraint firms, studyuses KZ index. The relationship is analyzed by implying GMM system two-step estimation technique. Data is taken from the balance sheet analysis in the annual reports of the firms listed at Pakistan Stock Exchange. Data is collected for 15 years from 2000 to 2014, but the analysis is performed for 14 years because 2000 was taken as a lag. The findings of the study suggest that financial leverage has a significant and negative impact on firms’ investment. This negative effect is significantly robust for the firms with low growth opportunities than the high growth opportunities. The results support that capital structure plays a vital role in the investment decision-making by the firms. Tobin’s Q has also shown a positive but slightly insignificant relationship with investment for the target samples. The relationship between cash flow and investment is positive and is highly significant. This research checks the robustness of these outcomes using alternative empirical models. In addition, the instrument variables approach is used to deal with the problem of endogeneity intrinsic in the relationship between leverage and investment. Supervisor:- Dr. Abdul Rashid