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

• 成果类型: Article
• 署名作者: Donohoe, Michael P.; Lisowsky, Petro; Mayberry, Michael A.
• 署名单位: University of Illinois System; University of Illinois Urbana-Champaign; Boston University; State University System of Florida; University of Florida
• 刊物名称: CONTEMPORARY ACCOUNTING RESEARCH
• ISSN/ISSBN: 0823-9150
• DOI: 10.1111/1911-3846.12464
• 发表日期: 2019
• 页码: 1784-1823
• 关键词: product market competition; off-balance-sheet; credit competition; tax-shelter; performance; RISK; earnings; BEHAVIOR; CONSEQUENCES; uncertainty

摘要

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.