Industrial Land Acquisition and Corporate Financing Preferences: Based on the Land Transaction Data From China

ABSTRACT This study investigates the interplay between governmental land resource allocation and its micro‐firms and market efficiency implications within China's unique land system. Using data from A‐share companies listed in Shanghai and Shenzhen between 2007 and 2021, this study empirically examines how industrial land acquisition influences corporate capital structure decisions. The results indicate that post‐land acquisition, firms exhibit a significant debt financing preference, counter to China's conventional equity financing preference but congruent with the Pecking Order Theory. This behaviour shift is attributed to an informational effect, reducing the cost of debt capital while increasing the cost of equity capital due to perceived investment risk. However, firms receiving discounted land concessions achieve simultaneous reductions in both costs of debt and equity, suggesting capital markets prioritise government‐endorsed projects. The study concludes that applying the Modigliani‐Miller Theory in China requires incorporating institutional transaction costs embedded in the land allocation process.