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Subchapter S, An Entrepreneurial Survival Strategy for Small Banks

Subchapter S, An Entrepreneurial Survival Strategy for Small Banks

With the passage of the Small Business Job Protection Act of 1996, many small banks throughout the United States became eligible to reorganize as a Subchapter S corporation. This allows these banks to eliminate double taxation, and increase shareholder value. Consequently, employing this entrepreneurial survival tool extends “new life” to the small bank. Accompanying this strategy are differences in corporate governance, primarily more concentration of ownership. Thus, this paper examines the behavior of Subchapter S banks as compared to banks of similar size in order to determine significant performance differences. It also focuses on bank structure and small business lending activity, an area of high asset concentration in small banks. Overall, we find shareholder value appears to... Show More
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