Handling Spillover Effects in Empirical Research

66 Pages Posted: 23 May 2019 Last revised: 29 Oct 2020

See all articles by Tobias Berg

Tobias Berg

Frankfurt School of Finance & Management

Markus Reisinger

Frankfurt School of Finance & Management - Economics Department; CESifo (Center for Economic Studies and Ifo Institute)

Daniel Streitz

Copenhagen Business School

Date Written: October 29, 2020

Abstract

Despite their importance, the discussion of spillover effects in empirical research often misses the rigor dedicated to endogeneity concerns. We analyze a broad set of workhorse models of firm interactions and show that spillovers naturally arise in many corporate finance settings. This has important implications for the estimation of treatment effects: i) even with random treatment, spillovers lead to an intricate bias, ii) fixed effects can exacerbate the spillover-induced bias. We develop guidance for empirical researchers, use our method to analyze the effect of a credit supply shock on employment, and highlight differences in results compared to current empirical practice.

Keywords: Spillovers, Cournot, Salop, Agglomeration, Demand Spillovers, Direct vs. Indirect Effects, Credit Supply

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

Suggested Citation

Berg, Tobias and Reisinger, Markus and Streitz, Daniel, Handling Spillover Effects in Empirical Research (October 29, 2020). 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

Markus Reisinger

Frankfurt School of Finance & Management - Economics Department ( email )

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Daniel Streitz

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

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