Regulatory spillovers in local mortgage markets

Ivan Lim, Duc Duy Louis Nguyen*, Linh Nguyen

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

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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.
Original languageEnglish
Article numbercfac035
Number of pages43
JournalReview of Corporate Finance Studies
VolumeIn press
Early online date21 Oct 2022
DOIs
Publication statusE-pub ahead of print - 21 Oct 2022
Event 2nd Conference on Contemporary Issues in Banking - University of St Andrews, School of Management, St Andrews, United Kingdom
Duration: 12 Dec 201713 Dec 2017

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