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Changes in Organizational Structure and Shareholder Wealth: The Case of Limited Partnerships

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  • Denning, Karen C.
  • Shastri, Kuldeep

Abstract

This paper analyzes the consequence for shareholders of a change in organizational form, the conversion of a corporation, or the spin-off of a unit into a limited partnership. Theory suggests that, prior to the Tax Reform Act of 1986, the tax benefits of conversion to a limited partnership and the creation of a new entity separate from the parent corporation should have a positive effect on shareholder wealth. On the other hand, the increase in agency costs of such an organizational change should decrease the wealth of shareholders. Empirical results lend support to hypotheses that predict an increase in stock price at the announcement of the conversion, but cannot identify the source of the gain.

Suggested Citation

  • Denning, Karen C. & Shastri, Kuldeep, 1993. "Changes in Organizational Structure and Shareholder Wealth: The Case of Limited Partnerships," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 28(4), pages 553-564, December.
    • Handle: RePEc:cup:jfinqa:v:28:y:1993:i:04:p:553-564_00
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    Cited by:

    1. Iwasaki, Ichiro & 岩﨑, 一郎 & イワサキ, イチロウ, 2013. "Economics of Corporate Form: Why Do Russian Firms Prefer to Be Closed Companies?," RRC Working Paper Series 3, Russian Research Center, Institute of Economic Research, Hitotsubashi University.
    2. Ebrahim, M. Shahid & Mathur, Ike, 2013. "On the efficiency of the UPREIT organizational form: Implications for the subprime crisis and CDO's," Journal of Economic Behavior & Organization, Elsevier, vol. 85(C), pages 286-305.
    3. Federica Pazzaglia, 2010. "Are Alternative Organizational Forms the Solution to Limit Excessive Managerial Discretion?," Journal of Business Ethics, Springer, vol. 93(4), pages 623-639, June.
    4. Dow,Gregory K., 2019. "The Labor-Managed Firm," Cambridge Books, Cambridge University Press, number 9781107589650, September.
    5. Gregory Dow, 2014. "Partnership markets with adverse selection," Review of Economic Design, Springer;Society for Economic Design, vol. 18(2), pages 105-126, June.
    6. Aaron J. Mandell, 2022. "The value of tunneling: Evidence from master limited partnership formations," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 49(1-2), pages 355-380, January.

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