Question: External financing (using equity or debt contracts) is in general less efficient than would occur if the manager financed the firm with his own funds.

External financing (using equity or debt contracts) is in general less efficient than would occur if the manager financed the firm with his own funds. In addition, the firm can minimize this inefficiency by choosing a capital structure that includes both equity and debt contracts. Explain [include in your answer a discussion on whether the amount of inside financing matter in this setup]. (Full answer that needs one page and doesn't exceed two pages)

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