Abstract
This paper identifies the important factors that affect the capital structure of non-financial listed firms in service sector. Empirical results indicate that profitability is inversely related to all measures of capital structure. Liquidity is negatively related to total leverage and short-term leverage. Firm size is positively related to all measures of capital structure with an exception that it is negatively related to shortterm leverage in the fixed effects method. More importantly, tangibility is inversely related to total leverage and short-term leverage. Finally, dividends are positively related to total leverage and short-term leverage. The positive and negative coefficients of different explanatory variables are found consistent with the implications of POT and TOT. Finally, results provide support to the managers of service sector firms in articulating a balanced capital structure.