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

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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.

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