- External financing
In the theory of
capital structure, External financing is the phrase used to describe funds that firms obtain from outside of the firm. It is contrasted to internal financingwhich consists mainly of profits retained by the firm for investment. There are many kinds of external financing. The two main ones are equity issues, ( IPOs or SEOs), but trade creditis also considered external financing as are accounts payable, and taxes owed to the government. External financing is generally thought to be more expensive than internal financing, because the firm often has to pay a transaction costto obtain it.
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