The Coercive Power of Mafia Reputation on Inter-firm Interactions

Organized crime represents a pervasive threat to countries worldwide. Yet, it is difficult to underpin how organized crime can jeopardize firms’ relationships and economic transactions in the legal economy. We explore this issue by analyzing to what extent firms’ behavior can be distorted due to the perceived threat of coercive actions from mafia-type organizations. We document that firms with top executives that have a mafia surname receive a greater trade credit extension than other similar firms. Reallocation of resources due to mafia reputation has relevant consequences for the real economy.