Abstract: We analyze the risk of mafia capture of firms operating in the legal economy. To overcome possible endogeneity concerns we exploit the abrupt drop in revenues caused by the Covid-19 related closures imposed in Spring 2020 in Italy. We find that the induced sudden and significant worsening of affected firms’ financial conditions increased the likelihood of them being infiltrated by mafia-connected entrepreneurs: a 10% drop in revenues leads to a 4.9% increase in the probability of mafia entry. We further show that firms are more likely to resort to mafia lending when they face temporary difficulties in repaying their debts.
Presented at: Bank of Italy, UCL, IFS, Bocconi University, Essex PhD Conference, AL CAPONE, QMUL PhD Workshop, ENTER Jamboree (Manheim), the 7th WEOC (Pavia), EEA-ESEM Congress (UPF)
Media coverage: ItaliaOggi