Review of Corporate Finance > Vol 2 > Issue 2

Mandatory Cash Distribution as One Stone for Two Birds: Curtailing the Agency Problem and Protecting Minority Shareholders

Haiwei Chen, School of Economics and Management, Nantong University and University of Alaska Fairbanks, USA, , Thanh Ngo, Department of Finance, East Carolina University, USA,
Suggested Citation
Haiwei Chen and Thanh Ngo (2022), "Mandatory Cash Distribution as One Stone for Two Birds: Curtailing the Agency Problem and Protecting Minority Shareholders", Review of Corporate Finance: Vol. 2: No. 2, pp 353-392.

Publication Date: 30 May 2022
© 2022 H. Chen and T. Ngo
Corporate Finance: Agency theory and information,  Corporate Finance: Corporate governance,  Corporate Finance: Dividend policy and capital structure
JEL Codes: G32, G35, H25
Mandatory cash payoutownership structureagency problemsperformancepublicly traded partnership


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In this article:
Theory and Related Studies 
Data and Methods 
A Discussion on the Implications 


Master limited partnerships (MLPs) are publicly traded partnerships in the United States and are contractually obligated to distribute free cash flow to investors quarterly. Contrasting with the use of stock options in executive compensation by corporations, the general partner receives its compensation from distributed cash just like limited partners do. After controlling for the endogeneity problem and selection bias, we document that the MLPs have a similar Tobin’s q, a higher return on asset, similar cash flow ratio, and lower systematic and lower idiosyncratic risk than the corporations. However, there is evidence that the tunneling problem still exists in MLPs. As cash flow is more transparent and thus more difficult for manipulation than accounting earnings are, a reasonably well-designed mandatory cash payout policy may be a useful tool to protect minority shareholder by reducing the agency problems in corporations and curbing the abuses in executive compensation.