This study investigates the impact of firm size and capital structure on earnings management. Annual data for five years (from 2006-2010) for Seventy five companies from Cement, Sugar and Chemical sectors of Pakistan is obtained for the purpose of the study. Total assets were used as proxy for firm size, gearing ratio as measure of capital structure and discretionary accruals for earnings management. Jones Model was used for calculation of discretionary accruals. Data was checked for heteroskedasticity and robust regression was applied controlling the heteroskedasticity, taking discretionary accruals as dependent variable and gearing ratio and total assets as independent variables. The results indicate a significant negative impact of capital structure on earning management. Thus we concluded that firms with debt based capital structure have creditors acting as watchdog on its earning management practices, however results firm size were not significant.