How Much Should We Trust Staggered Difference-In-Differences Estimates?

61 Pages Posted: 1 Mar 2021 Last revised: 27 Jan 2022

See all articles by Andrew Baker

Andrew Baker

Berkeley Law School

David F. Larcker

Stanford Graduate School of Business; Stanford University - Hoover Institution; European Corporate Governance Institute (ECGI)

Charles C. Y. Wang

Harvard University - Accounting & Control Unit; European Corporate Governance Institute (ECGI)

Date Written: January 16, 2022

Abstract

We explain when and how staggered difference-in-differences regression estimators, commonly applied to assess the impact of policy changes, are biased. These biases are likely to be relevant for a large portion of research settings in finance, accounting, and law that rely on staggered treatment timing, and can result in Type-I and Type-II errors. We summarize three alternative estimators developed in the econometrics and applied literature for addressing these biases, including their differences and tradeoffs. We apply these estimators to re-examine prior published results and show, in many cases, the alternative causal estimates or inferences differ substantially from prior papers.

Keywords: Difference in differences, staggered difference-in-differences designs, generalized difference-in-differences, dynamic treatment effects

JEL Classification: C13, C18, C21, C22, C23

Suggested Citation

Baker, Andrew and Larcker, David F. and Wang, Charles C. Y., How Much Should We Trust Staggered Difference-In-Differences Estimates? (January 16, 2022). European Corporate Governance Institute – Finance Working Paper No. 736/2021, Rock Center for Corporate Governance at Stanford University Working Paper No. 246, Journal of Financial Economics (JFE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=3794018 or http://dx.doi.org/10.2139/ssrn.3794018

Andrew Baker (Contact Author)

Berkeley Law School ( email )

Berkeley
United States

David F. Larcker

Stanford Graduate School of Business ( email )

Graduate School of Business
518 Memorial Way
Stanford, CA 94305-5015
United States
650-725-6159 (Phone)

Stanford University - Hoover Institution ( email )

Stanford, CA 94305
United States

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Charles C. Y. Wang

Harvard University - Accounting & Control Unit ( email )

Soldiers Field
Boston, MA 02163
United States

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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