Regulatory Spillovers in Local Mortgage Markets

Lim, I; Nguyen, DD; Nguyen, HL

Abstract

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.

Citation

Lim, I., Nguyen, D., & Nguyen, H. (2024). Regulatory Spillovers in Local Mortgage Markets. The Review of Corporate Finance Studies, 13(3), 775–817. https://doi.org/10.1093/rcfs/cfac035

• Journal Article Type: Article
• Acceptance Date: Aug 21, 2022
• Online Publication Date: Oct 10, 2022
• Publication Date: 2024-08
• Deposit Date: Oct 4, 2022
• Publicly Available Date: Dec 21, 2022
• Journal: Review of Corporate Finance Studies
• Print ISSN: 2046-9128
• Electronic ISSN: 2046-9136
• Publisher: Society for Financial Studies
• Peer Reviewed: Peer Reviewed
• Volume: 13
• Issue: 3
• Pages: 775–817
• DOI: https://doi.org/10.1093/rcfs/cfac035
• Public URL: https://durham-repository.worktribe.com/output/1190047