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Earnings management under different ownership and corporate governance structure: a natural experiment with master limited partnerships

Earnings management under different ownership and corporate governance structure: a natural experiment with master limited partnerships
Earnings management under different ownership and corporate governance structure: a natural experiment with master limited partnerships

Master limited partnership (MLP) is a publicly traded partnership run by a general partner (GP) with sole managerial decision-making power, whereas limited partners (LPs) have no role in the operation. As an alternative ownership structure to the traditional corporate ownership, MLPs by law must pay out available cash flow to GPs and LPs. GPs are compensated not by standard stock options but by the distributed cash flow. We find that the MLPs engage in more real activities management than their matching corporations do, but no difference in discretionary accruals management. Since firm characteristic variables do not have a much moderating effect, the difference in governance structures is not the key driver for the behavioral difference, which we attribute to a more quick response by GPs to changes in market conditions. MLPs have higher pressure to generate a consistent stream of earnings and to smooth cash distributions to their unitholders.

Corporate governance, Earnings management, Master limited partnership
1062-9769
Chen, Haiwei
e09a8f8f-19a7-4ba9-b4c6-4264b197313c
Jory, Surendranath
2624eb24-850a-48f6-b3c6-c96749b87322
Ngo, Thanh
852ea7b9-fd74-4a39-9281-87626e50886b
Chen, Haiwei
e09a8f8f-19a7-4ba9-b4c6-4264b197313c
Jory, Surendranath
2624eb24-850a-48f6-b3c6-c96749b87322
Ngo, Thanh
852ea7b9-fd74-4a39-9281-87626e50886b

Chen, Haiwei, Jory, Surendranath and Ngo, Thanh (2019) Earnings management under different ownership and corporate governance structure: a natural experiment with master limited partnerships. Quarterly Review of Economics and Finance. (doi:10.1016/j.qref.2019.05.005).

Record type: Article

Abstract

Master limited partnership (MLP) is a publicly traded partnership run by a general partner (GP) with sole managerial decision-making power, whereas limited partners (LPs) have no role in the operation. As an alternative ownership structure to the traditional corporate ownership, MLPs by law must pay out available cash flow to GPs and LPs. GPs are compensated not by standard stock options but by the distributed cash flow. We find that the MLPs engage in more real activities management than their matching corporations do, but no difference in discretionary accruals management. Since firm characteristic variables do not have a much moderating effect, the difference in governance structures is not the key driver for the behavioral difference, which we attribute to a more quick response by GPs to changes in market conditions. MLPs have higher pressure to generate a consistent stream of earnings and to smooth cash distributions to their unitholders.

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MLP earnings Management 29 november 2018 (no authors) - Accepted Manuscript
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More information

Accepted/In Press date: 4 May 2019
e-pub ahead of print date: 8 May 2019
Keywords: Corporate governance, Earnings management, Master limited partnership

Identifiers

Local EPrints ID: 431664
URI: http://eprints.soton.ac.uk/id/eprint/431664
ISSN: 1062-9769
PURE UUID: 249fbc31-fa08-4f49-a8c7-bfebd78093c5
ORCID for Surendranath Jory: ORCID iD orcid.org/0000-0002-8265-0001

Catalogue record

Date deposited: 12 Jun 2019 16:30
Last modified: 28 Apr 2022 05:57

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Contributors

Author: Haiwei Chen
Author: Thanh Ngo

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