IDEAS home Printed from
   My bibliography  Save this article

Subchapter S, An Entrepreneurial Survival Strategy for Small Banks


  • Steven G. Craig

    (University of Houston)

  • Polly T. Hardee

    (University of Houston)


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 increase in a Subchapter S banking organization through higher earnings, larger dividend payout ratios, and similar risk measures. We find little differences in these banks in relation to small business lending. The implications are that a small bank’s survival rate will be higher in the consolidation process by employing the Subchapter S strategy.

Suggested Citation

  • Steven G. Craig & Polly T. Hardee, 2002. "Subchapter S, An Entrepreneurial Survival Strategy for Small Banks," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 7(3), pages 53-60, Fall.
  • Handle: RePEc:pep:journl:v:7:y:2002:i:3:p:53-60

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Goldberg, Lawrence G. & White, Lawrence J., 1998. "De novo banks and lending to small businesses: An empirical analysis," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 851-867, August.
    2. Loretta J. Mester, 1997. "What's the point of credit scoring?," Business Review, Federal Reserve Bank of Philadelphia, issue Sep, pages 3-16.
    3. Strahan, Philip E. & Weston, James P., 1998. "Small business lending and the changing structure of the banking industry1," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 821-845, August.
    4. Jayaratne, Jith & Wolken, John, 1999. "How important are small banks to small business lending?: New evidence from a survey of small firms," Journal of Banking & Finance, Elsevier, vol. 23(2-4), pages 427-458, February.
    Full references (including those not matched with items on IDEAS)

    More about this item


    Banks; Small Banks; Subchapter S; S-Corp; Survival;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pep:journl:v:7:y:2002:i:3:p:53-60. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Craig Everett). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.