Spillover Effects in Empirical Corporate Finance
68 Pages Posted: 23 Dec 2020
Date Written: December 2020
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 a complicated bias, ii) fixed effects can exacerbate the spillover-induced bias. We propose simple diagnostic tools for empirical researchers and illustrate our guidance in an application.
JEL Classification: C13, C21, G21, G32, M41, M42, R11, R23
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