DP15549 Spillover Effects in Empirical Corporate Finance

Author(s):	Tobias Berg, Markus Reisinger, Daniel Streitz
Publication Date:	December 2020
Keyword(s):	credit supply, Direct vs. Indirect Effects, Spillovers
JEL(s):	C13, C21, G21, G32, M41, M42, R11, R23
Programme Areas:	Financial Economics
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=15549

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.