Capital Restructuring and Accounting Compliance Costs: The Case of Publicly Traded Partnerships

Abstract:     
This study investigates the effects on firm values of costs and benefits associated with capital restructuring through publicly traded partnerships (PTPs). Potential motives for corporate capital restructuring include improved reinvestment decisions, improved asset management, reduced information asymmetries and information dissemination. Using factor analysis and cluster analysis, we group firms based on their most likely non-tax economic motive for restructuring. We then test whether cumulative abnormal returns around the restructuring announcement are associated with these non-tax motives as well as the potential tax benefits and costs associated with ownership conflicts of interest, operating conflicts of interest, accounting compliance costs and tax liquidation costs. Our results suggest that two non-tax motives (improved asset management and improved reinvestment decisions) as well as the potential tax benefits resulted in positive price reactions. Costs associated with operating conflicts of interest, accounting compliance costs and tax liquidation costs resulted in negative price reactions.

JEL Classification: G34, G12, G14, D82, K34

working papers series