The Effect of Shareholder-Level Taxes on Organizational Form and Stock Ownership: Evidence from Equity Carve-Outs of Master Limited Partnerships

The Accounting Review, Vol. 94, No. 1, January 2019

Posted: 6 Sep 2015 Last revised: 16 Mar 2019

See all articles by Steven Utke

Steven Utke

University of Connecticut - Department of Accounting

Date Written: April 30, 2018

Abstract

I examine the role of heterogeneous shareholder-level taxes in organizational form decisions and in subsequent changes in investor stock ownership. Specifically, I investigate the decision to form a master limited partnership (MLP), which is a tax-advantaged entity for tax-sensitive shareholders but a tax-disadvantaged entity for tax-exempt shareholders. Consistent with shareholder-level taxes influencing organizational form decisions, I find that firms owned by more tax-exempt shareholders are less likely to carve-out MLPs. Consistent with shareholder-level taxes influencing stock ownership, I find that tax-sensitive investors, on average, decrease their ownership in the parent and hold a relatively larger ownership share in the MLP than in the parent after the carve-out. In contrast, tax-exempt investors own less of the MLP than of the parent. These results provide evidence that firms cater to investors’ shareholder-level taxes in making organizational form decisions and that investors sort on tax characteristics inherent to organizational form.

Keywords: Organizational Form, Master Limited Partnerships, Equity Carve-Outs, Tax-Sensitivity, Shareholder-Level Taxes, Tax Clienteles

JEL Classification: G32, H24, H25

Suggested Citation

Utke, Steven, The Effect of Shareholder-Level Taxes on Organizational Form and Stock Ownership: Evidence from Equity Carve-Outs of Master Limited Partnerships (April 30, 2018). The Accounting Review, Vol. 94, No. 1, January 2019, Available at SSRN: https://ssrn.com/abstract=2656429 or http://dx.doi.org/10.2139/ssrn.2656429

Steven Utke (Contact Author)

University of Connecticut - Department of Accounting ( email )

School of Business
Storrs, CT 06269-2041
United States

HOME PAGE: http://www.steveutkedata.com/

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