The Effect of Risk and Tax Differences on Corporate and Limited Partnership Capital Structure

This paper extends our understanding of capital structure differences across organizational form. We build on existing capital structure literature concerning partnership debt use and suggest that high business risk, in combination with general partner (GP) unlimited liability, explains cross-sectional differences in corporate and limited partnership (LP) debt levels. We find that when considered concomitantly with the tax explanation, the risk explanation is a significant factor explaining capital structure differences between LPs and corporations. Our contribution to the literature is demonstrating the combined effect of business risk and GP unlimited liability on an LP's capital structure across multiple industry groups.