According to the sequential financing theory, enterprises should first use their own capital, then debt financing, and finally equity financing. That is, first inside and then outside. Internal financing has an interest tax shield, which can play the role of tax exemption, which is called its advantage. However, the increased financial leverage will increase the agency cost and bankruptcy cost, which is its disadvantage.

Judging from China's national conditions, listed companies in China tend to use external financing. It is considered as a financing method of borrowing money and not paying it back. This is the imperfection of China's capital market. External financing is good for listed companies to circle money, which is called its advantage. But at the same time, it dilutes the equity and harms the interests of the old shareholders, which is called its shortcomings.