Business Commons^™

Community Bank Competition And Distress Events, Alejandro Pacheco

FIU Electronic Theses and Dissertations

The Small Business Job Protection Act of 1996 allows US banks to adopt the Subchapter S status and avoid double taxation. Many banks adopt the Subchapter S status and then transition back to C banks. In our first analysis, we investigate the reasons why these Subchapter S banks convert back to C banks and find that Subchapter S banks that experience financial distress most likely convert to the C status. Post-conversion we observe a marked increase in equity and a decline in risk measures alongside improving profitability ratios. The limit on number of shareholders inherent in Subchapter S banks inhibits …