Organizational Restructuring, Equity Valuation, and Limited Partnerships |
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| Authors: | Donald G Christensen Linda F Christensen |
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| Institution: | Wichita State University, Wichita, KS 67208. We express gratitude to those who attended presentations of an earlier version of this paper at The Wichita State University, Kansas State University, and the University of South Carolina. We express appreciation to Vijay Jog and the participants at the Northern Finance Association meeting. We especially express gratitude to Rodney L. Roenfeldt and William T. Moore for their many helpful comments and suggestions. |
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| Abstract: | This research investigates common equity price reactions to announcements of limited partnerships (LPs) in which parent firms retain general partnership interests. On average, prices react positively to these announcements, which suggests that creating LPs is a marginally effective method of separately financing investment projects. This study provides evidence that the systematic variation in prediction errors across announcements is positively related to the percent ownership retained in the LP by the parent, which suggests that ownership retention signals information about the value of the LP, the costs of controlling the LP, and the amount of external financing needed for the LP. |
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