The Impact of Tax Law Changes on Bank Dividend Policy, Sell-Offs, Organizational Form and Industry Structure

Mehran, Hamid; Suher, Michael

doi:10.2139/ssrn.1402745

Cited by 7 publications

(6 citation statements)

References 16 publications

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“…Three studies assess the benefits and costs of Subchapter S for banks. Mehran and Suher () find that, due to the tax‐free treatment of S corporation dividends, S banks pay more dividends. However, S banks also have lower Tier 1 capital ratios than C banks, which limits their ability to access external financing.…”

Section: Background and Hypothesis Developmentmentioning

confidence: 99%

“…Also, as corporate income and losses pass through to cash-basis shareholders, S banks cannot reserve for bad debts, potentially increasing taxable income (GAO 2000). Regardless, S corporations are a popular organizational form, accounting for 33 percent of all banks (Mehran and Suher 2009;Mayberry et al 2015). Three studies assess the benefits and costs of Subchapter S for banks.…”

Section: Depository Institutionsmentioning

confidence: 99%

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The Effects of Competition from S Corporations on the Organizational Form Choice of Rival C Corporations

Donohoe

Lisowsky

Mayberry

2019

Contemporary Accting Res

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Subchapter C of the U.S. Internal Revenue Code levies an entity‐level tax on corporate profits, whereas Subchapter S allows corporations meeting specific criteria to elect out of this tax. Despite these differences, C and S corporations regularly compete for customers and capital. We examine whether and the extent to which competition from S corporations influences the future organizational form choice of rival C corporations and explore outcomes of this choice. Using data for 4,462 private U.S. commercial banks grouped by Metropolitan Statistical Area during 1997–2010, we find that greater competition from S corporation banks increases the likelihood that rival C corporation banks convert to Subchapter S status. We estimate that the aggregate first‐year tax savings from S conversion exceed $372 million. Consistent with these savings being used to maintain competitive parity with rivals, we find that converting banks increase their interest rates on customer deposits and advertising intensity. Our findings provide insight into whether competition from tax‐advantaged firms influences the organizational form choice of rival tax‐disadvantaged firms.

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Section: Background and Hypothesis Developmentmentioning

confidence: 99%

Section: Depository Institutionsmentioning

confidence: 99%

The Effects of Competition from S Corporations on the Organizational Form Choice of Rival C Corporations

Donohoe

Lisowsky

Mayberry

2019

Contemporary Accting Res

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“…There are three prominent studies assessing the benefits and costs of Subchapter S election for banks. Mehran and Suher (2009) find that due to the tax-free treatment of S corporation dividends, S corporation banks pay more dividends. However, they also find that S-banks have lower Tier 1 capital ratios than C corporation banks, possibly reflecting their lower ability to access external financing.…”

Section: Introductionmentioning

confidence: 94%

“…US incorporated banks and have received considerable academic interest in the past (Mehran and Suher, 2009;Mayberry, Weaver and Wilde, 2015;Donohoe, Lisowsky and Mayberry, 2019). 8…”

Section: Vs S Corporationsmentioning

confidence: 99%

C and S Corporation Banks: Did Trump's Tax Reform Lead to Differential Effects?

Thi

Weichenrieder

2021

SSRN Journal

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The US Tax Cuts and Jobs Act (TCJA) led to a drastic reduction in the corporate tax and improved the treatment of C corporations compared to S corporations. We study the differential effect of the TCJA on these types of corporations using key economic variables of US banks, such as the number of employees, average salaries and benefits, profit/loss before taxes, and net income. Our analysis suggests that the TCJA increased the net-of-tax profits of C corporation banks compared to S corporations and, to a lesser extent, their pre-tax profits. At the same time, the reform triggered no significantly differential effect on the employment and average wages.

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“…To the extent that S-corporation conversions are also increasing over time, we potentially misattribute our findings to S-corporation organizational form rather than competition. Moreover, prior research suggests that competitive pressures are associated with the incidence of S-corporation elections among banks and suggests that S-corporation density potentially influences bank behavior (Donohoe, Lisowsky, and Mayberry, 2015;Mehran and Suher, 2009). To assess the effects of potential differences in the competitive environments in which banks operate, we re-estimate our risk-taking tests after including three additional variables, StateHHI, Rural, and StateSShr, which capture competition.…”

Section: B Risk-takingmentioning

confidence: 99%

Risk Consequences of Tax-Motivated Choice of Organizational Form in the Banking Industry

Mayberry¹,

Weaver²,

Wilde³

2015

National Tax Journal

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We examine the risk consequences of the S-corporation election, a tax-motivated organizational form, on banks' risk-taking behaviors and extreme adverse outcomes. S-corporations' single level of taxation increases access to after-tax internal capital and likely enhances S-corporation monitoring efforts. However, S-corporations face strict organizational restrictions on the number and type of allowable shareholders. Given banks' rigid capital criteria and active regulatory environment, this differential access to external capital is likely to influence S-corporations' risk-taking behavior. Our evidence suggests that the organizational restrictions necessary to qualify for S-corporation status reduce risk-taking behaviors and limits some extreme adverse outcomes.

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The Impact of Tax Law Changes on Bank Dividend Policy, Sell-Offs, Organizational Form and Industry Structure

Cited by 7 publications

References 16 publications

The Effects of Competition from S Corporations on the Organizational Form Choice of Rival C Corporations

The Effects of Competition from S Corporations on the Organizational Form Choice of Rival C Corporations

C and S Corporation Banks: Did Trump's Tax Reform Lead to Differential Effects?

Risk Consequences of Tax-Motivated Choice of Organizational Form in the Banking Industry

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