This paper goes beyond the scope of analysis of financial theories that weakly incorporate the impact of the institutional environment. In particular, we seek to demonstrate the empirical relevance of institutional factors (legal, economic and governmental) in order to study the financial behaviour of firms. Furthermore, capital structure studies had mainly focused on firms in developed countries and little attention is given on how firms in developing and emerging market decide on its capital structure decisions. Based on a sample of 41 developing countries, the empirical results show that the development of financial system, the regulation of the bank sector, the openness of trade policy, the political stability and the level of corruption determine the financing choices of the firms. Our results confirm that institutional factors specific to countries in transition prevent generalization of Anglo-Saxon results.