Handling Spillover Effects in Empirical Research

59 Pages Posted: 23 May 2019 Last revised: 20 Nov 2019

See all articles by Tobias Berg

Tobias Berg

Frankfurt School of Finance & Management

Daniel Streitz

Copenhagen Business School

Date Written: November 19, 2019

Abstract

Despite their importance, the discussion of spillover effects in empirical research misses the rigor dedicated to endogeneity concerns. We show that i) even with random treatment, spillovers lead to an intricate bias in estimating treatment effects, ii) there is a trade-off between endogeneity and spillover concerns, iii) the practice of using individual level regressions to identify direct effects and aggregate level regressions to learn about spillover effects can lead to misleading conclusions. We develop a simple guidance for empirical researchers, apply it to two empirical settings, and highlight differences in the results compared to current empirical practice.

Keywords: Spillovers, Direct vs. Indirect Effects, Aggregate Effects, Credit Supply, Sarbanes-Oxley Act

JEL Classification: C13, C21, G21, G32, R11, R23, M41, M42

Suggested Citation

Berg, Tobias and Streitz, Daniel, Handling Spillover Effects in Empirical Research (November 19, 2019). Available at SSRN: https://ssrn.com/abstract=3377457 or http://dx.doi.org/10.2139/ssrn.3377457

Tobias Berg (Contact Author)

Frankfurt School of Finance & Management ( email )

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

Daniel Streitz

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

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