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Regulatory Spillovers in Local Mortgage Markets

Author

Listed:
  • Ivan Lim
  • Duc Duy Nguyen
  • Linh Nguyen

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. (JEL E51, G21, G38)

Suggested Citation

  • Ivan Lim & Duc Duy Nguyen & Linh Nguyen, 2024. "Regulatory Spillovers in Local Mortgage Markets," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 13(3), pages 775-817.
    • Handle: RePEc:oup:rcorpf:v:13:y:2024:i:3:p:775-817.
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    File URL: http://hdl.handle.net/10.1093/rcfs/cfac035
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    More about this item

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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