The Fear Factor: How Mafia Influences Firms’ Performance

Using coercion to instill fear, organized crime poses a global threat. We investigate how this threat distorts markets and generates real-world consequences using publications on Italian Mafia surnames disclosed by national judicial and investigative forces. We show that firms with executives sharing Mafia surnames negatively impact the performance, sales growth, and induce financial constraint of peer firms in the same industry and area. Peer firms also experience a decline in the number of employees. Our results are more pronounced in cases where there might be more severe asymmetric information concerning the identity of top executives, such as in the Northern regions, and in areas with more mafia infiltration and crimes. As a possible mechanism of how the fear of the Mafia disrupts relationships and economic transactions, we find that mafia-surname firms receive greater liquidity support from their suppliers.