The influence of taxes and other factors on debt ratio differences between Master Limited Partnerships and corporations
Terando, William David
This item is only available for download by members of the University of Illinois community. Students, faculty, and staff at the U of I may log in with your NetID and password to view the item. If you are trying to access an Illinois-restricted dissertation or thesis, you can request a copy through your library's Inter-Library Loan office or purchase a copy directly from ProQuest.
Permalink
https://hdl.handle.net/2142/18948
Description
Title
The influence of taxes and other factors on debt ratio differences between Master Limited Partnerships and corporations
Author(s)
Terando, William David
Issue Date
1993
Doctoral Committee Chair(s)
Dietrich, J. Richard
Department of Study
Department of Accountancy
Discipline
Accountancy
Degree Granting Institution
University of Illinois at Urbana-Champaign
Degree Name
Ph.D.
Degree Level
Dissertation
Keyword(s)
Business Administration, Accounting
Language
eng
Abstract
"This dissertation examines whether taxes and other factors influence debt ratio differences between corporations and Master Limited Partnerships. Four explanations are presented which predict that MLPs will have different debt ratios than IPOs. The first explanation predicts that the deductibility of interest expense provides IPOs with more incentive, relative to MLPs, to include debt in their financial structure. The second explanation predicts that MLPs will have lower debt ratios than IPOs because of the business risk differences between Investment and Operating MLPs and the organizational structure differences between limited partnerships and IPOs. The third explanation predicts that MLPs will have lower debt ratios than IPOs because MLPs are likely to have relatively higher levels of asset-based tax shields. This is because MLPs can write up their assets to fair market value when their units are sold in secondary markets (IRC S 754). The fourth alternative explanation suggests that MLPs formed by ""high debt ratio"" firms will have relatively higher debt ratios than other MLPs (or IPOs) because of: (a) the non-tax costs associated with significantly reducing debt obligations (including pre-payment penalties, (b) the advantages to the general partner of holding debt within an MLP."
This study shows that the deductibility of interest expense for tax purposes provides IPOs with more incentive than MLPs to include debt in their financial structure. However, it also suggests that MLPs have lower debt ratios than IPOs because Investment MLPs have lower debt ratios than Operating MLPs (and IPOs). This result is important because it suggests that previous studies may have overstated the importance of taxes in influencing debt ratio differences between MLPs and corporations by not also considering the distinction between Investment and Operating MLPs. As a result, policy makers who interpret MLP and corporate debt ratio differences as an indication of what would happen under an integrated tax system should evaluate these conclusions carefully.
Use this login method if you
don't
have an
@illinois.edu
email address.
(Oops, I do have one)
IDEALS migrated to a new platform on June 23, 2022. If you created
your account prior to this date, you will have to reset your password
using the forgot-password link below.
