capital structure

CFA Level II
#1

In Schweser, they have “firms operating in countries with strong legal systems have less agency costs and tend to use less debt overall”. Schweser also writes "greater amounts of financial leverage tend to reduce agency costs.

So the first sentence is saying that lower agency costs result in less debt, but the sencond sentence is saying that more leverage (more debt) tends to reduce agency costs. Are these contradicting?

#2

The statements are not contradicting. If the agency costs are low, the firms tend to have a lower leverage. If agency costs are higher, then firms tend to have a higher leverage to mitigate the agency costs.

Once the agency costs are reduced, then the firms can decrease their leverage.