Regulatory Spillovers in Local Mortgage Markets

We document novel evidence on the spillover effect of a corporate control regulation on local mortgage markets. We find that banks directly targeted by the Sarbanes-Oxley Act (SOX) to rectify their internal control weaknesses reduce mortgage originations following the regulation’s enactment. This ca...

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Bibliographic Details
Published in:The Review of Corporate Finance Studies 2024-08, Vol.13 (3), p.775-817
Main Authors: Lim, Ivan, Nguyen, Duc Duy, Nguyen, Linh
Format: Article
Language:English
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Summary:We document novel evidence on the spillover effect of a corporate control regulation on local mortgage markets. We find that banks directly targeted by the Sarbanes-Oxley Act (SOX) to rectify their internal control weaknesses reduce mortgage originations following the regulation’s enactment. This causes mortgage credit to be reallocated toward other banks in the same local markets: while competing public banks expand lending to safer borrowers, private banks increase lending toward risky applicants. Consequently, loans originated by private banks in spillover counties report higher default rates. (JEL E51, G21, G38)
ISSN:2046-9128
2046-9136
DOI:10.1093/rcfs/cfac035