The Stock Market and Discrimination in Mortgage Lending

Abstract

Comparing private banks that went public through mergers and acquisitions with similar private banks, we find that going public reduces the mortgage denial rates for African American borrowers by 6.1-6.3 percentage points, which reduces the racial disparity in mortgage approval rates by a third. Our results are not driven by changes in borrower risk characteristics, lender risk preferences, securitization, or increased disclosure requirements. The effect is more pronounced in areas suffering stronger racial biases. Our results suggest that the dispersed ownership can mitigate non-economically motived prejudice of concentrated private ownership and thereby alleviates taste-based discrimination in mortgage lending.