Organized Crime and Firms - Evidence from Italy

We exploit staggered municipality-level anti-mafia enforcement actions over the
1995-2015 period to study the effect of organized crime on firms. At the municipality
level, we find that as the influence of organized crime weakens, competition and
innovative activity increase. At the firm level, existing firms that do not exit in
response to enforcement actions shrink in size and experience reduced employee
productivity and profitability. These results are more pronounced among firms that
are treated repeatedly and firms founded during the heydays of the mafia. We also
find our results to be stronger for firms in the non-tradable sector, where prices are
more likely set locally. Our findings are consistent with accounts of organized crime
acting as an enforcer of cartels and using legitimate business to launder money