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Matching Organizational Structure with Firm Attributes: A Study of Master Limited Partnerships

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  • Conrad S. Ciccotello
  • Chris J. Muscarella

Abstract

To create value and reduce agency costs, firms adopt available organizational structures that match their attributes. This paper studies the characteristics of firms that choose to become master limited partnerships (MLPs). The MLP sample is dominated by firms in low-growth industries that have highly focused operations and superior profitability compared to their industry peers. After becoming an MLP, sample firms reduce capital expenditures and increase cash distributions, taking advantage of their focus, profitability, and status as non-taxable entities. A subsample of MLPs subsequently change back to corporate form. After becoming corporations, these firms reverse course by cutting cash distributions and increasing capital spending. This cycle demonstrates how firms restructure to adopt organizational forms that best fit their needs.

Suggested Citation

  • Conrad S. Ciccotello & Chris J. Muscarella, 1997. "Matching Organizational Structure with Firm Attributes: A Study of Master Limited Partnerships," Review of Finance, European Finance Association, vol. 1(2), pages 169-191.
    • Handle: RePEc:oup:revfin:v:1:y:1997:i:2:p:169-191.
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    File URL: http://hdl.handle.net/10.1023/A:1009756222375
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    Cited by:

    1. Rakowski, David & Shirley, Sara E. & Stark, Jeffrey R., 2017. "Tail-risk hedging, dividend chasing, and investment constraints: The use of exchange-traded notes by mutual funds," Journal of Empirical Finance, Elsevier, vol. 44(C), pages 91-107.
    2. 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.
    3. Atanassov, Julian & Mandell, Aaron J., 2018. "Corporate governance and dividend policy: Evidence of tunneling from master limited partnerships," Journal of Corporate Finance, Elsevier, vol. 53(C), pages 106-132.
    4. Boyer, M. Martin & Stern, Léa H., 2012. "Is corporate governance risk valued? Evidence from directors' and officers' insurance," Journal of Corporate Finance, Elsevier, vol. 18(2), pages 349-372.

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