Regulatory Spillovers in Local Mortgage Markets

Review of Corporate Finance Studies, forthcoming

59 Pages Posted: 4 Sep 2017 Last revised: 6 Oct 2022

See all articles by Ivan Lim

Ivan Lim

Durham University

Duc Duy Nguyen

Durham University

Linh Nguyen

University of St. Andrews

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

Lim, Ivan and Nguyen, Duc Duy and Nguyen, Linh, Regulatory Spillovers in Local Mortgage Markets (October 6, 2022). Review of Corporate Finance Studies, forthcoming , Available at SSRN: https://ssrn.com/abstract=3031574 or http://dx.doi.org/10.2139/ssrn.3031574

Ivan Lim

Durham University ( email )

Millhill Lane
Durham DH1 3LB
United Kingdom

Duc Duy Nguyen (Contact Author)

Durham University ( email )

Mill Hill Lane
Durham, Durham DH1 3HP
United Kingdom

HOME PAGE: http://sites.google.com/site/louisnguyen6589/home

Linh Nguyen

University of St. Andrews ( email )

The Gateway
North Haugh
St Andrews, Fife KY16 9RJ
United Kingdom

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