Mafia Infiltrations in Times of Crisis: Evidence from the Covid-19 Shock

We analyse the risk of mafia infiltration into firms operating in the legal economy. To address potential endogeneity concerns, we exploit the sharp drop in revenues caused by the Covid-19- related lockdowns imposed in Italy in spring 2020. We find that the induced sudden and significant deterioration in firms’ financial conditions increased the likelihood of infiltration by mafia-connected entrepreneurs: a 10 per cent drop in revenues leads to a 4.9 per cent increase in the probability of mafia infiltration. Although the overall prevalence of – and therefore the induced increase in – infiltrated firms is limited in absolute terms, the estimated effect is non-negligible given its implications for the legal economy. We further show that firms are more likely to resort to mafia-linked lending when they face temporary difficulties in repaying their debts.