Regulatory Spillovers in Local Mortgage Markets
Review of Corporate Finance Studies, forthcoming
59 Pages Posted: 4 Sep 2017 Last revised: 6 Oct 2022
Date Written: October 6, 2022
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.
Keywords: Sarbanes–Oxley Act, Internal control, Lending, Banking, Regulatory spillovers
JEL Classification: E51, G21, G38
Suggested Citation: Suggested Citation