Master Limited Partnerships unique vehicle for investor value creation

Abstract

Master Limited Partnerships (MPLs) are a unique vehicle within which to conduct business activities to achieve superior value creation for investors. Very little research has been published that examines how the unique MLP structure contributes to investor recognition of value creation measured by market returns. This dissertation examines three attributes unique to MLPs, income tax treatment of MLPs, corporate governance advantages and regulatory environment in which they operate. I ask how markets value MLPs avoidance of double taxation to which tradition corporations are subject. My research also examines how markets react to the commitment of future cash flows to the MLPs structural discipline to return cash to investors. Lastly, my research looks at the impact of change to the regulatory regime that alters MLPs structural advantage over those of traditional corporations. My research uses two event studies to measure abnormal market returns on or around dates of events that change the relative distinction of MLPs compared to other investment opportunities available to investors. My research investigates abnormal returns around the enactment of the Tax Cuts and Jobs Act of 2017 and indicates the reduction of income tax policy advantages was detrimental to MLP valuations. Corporate governance advantages of MLPs, measured by subjecting future cash flows to greater management discipline, is examined by analyzing abnormal market returns around the dates when material assets were transferred from a traditional corporate structure to an MLP. MLPs generated significant abnormal returns as cash generating assets were subjected to the discipline of the MLP structure. Finally, significant abnormal returns are observed on the date of a major change in the regulatory regime, specific to MLPs, was released. This dissertation improves our understanding of the value creation aspects that differentiate MLPs from traditional corporate business structures.