Doctor of Philosophy (PhD)
First Advisor's Name
Edward R. Lawrence
First Advisor's Committee Title
Second Advisor's Name
Second Advisor's Committee Title
Third Advisor's Name
Third Advisor's Committee Title
Fourth Advisor's Name
Fourth Advisor's Committee Title
Community Banks, Commercial Banks, Subchapter S, Conversion, Default, M&A, Deposit, Loan, Rates
Date of Defense
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 their ability to counter poor performance by restricting their access to capital markets. The Subchapter S banks in distress convert to C banks to access the additional equity needed to rebalance their loan portfolio and remain viable.
In our second analysis, we investigate the factors that explain mergers and acquisitions (M&A), defaults, and organizational conversions by Subchapter S banks and commercial (C) banks. Our results indicate that Subchapter S banks in financial distress first seek to undergo an M&A. Second, they seek to convert to the C status if the attainment of equity capital is possible and is sufficient to rebalance their portfolio and survive. Lastly, these banks default if the first two options are not possible. For C banks, the conversion to an S bank is made from a position of profitability where they convert to benefit from the tax exemption. Similar to S banks, C banks under financial distress attempt to undergo M&A first and default if M&A is not possible.
Lastly, we compare competitive rates between C corporation banks, Subchapter S banks and Credit Unions. In this study, we perform an extensive analysis on 30 different bank products over 12 years. Our results indicate that while Subchapter S banks and credit unions both benefit from the tax exemption status, the tax savings are not passed onto customers in similar ways. Credit unions seem to pass tax savings onto all deposit and loan products when compared to C corporation banks while Subchapter S banks only do so for a few select products.
Pacheco, Alejandro, "Community Bank Competition and Distress Events" (2019). FIU Electronic Theses and Dissertations. 4253.
Available for download on Wednesday, May 26, 2021
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