Is It Worth Having the Sopranos on Board? Corporate Governance Pollution and Organized Crime in Italy

• In Event: Financial Reporting Transparency

Abstract

We assess the economic consequences of the presence of organized crime in the private sector. Using a sample of Italian firms, we find that firms with at least one director, whose criminal record displays potential involvement with criminal organizations (i.e., tainted director), show lower levels of cash holdings and lower profitability. We run several tests to address potential endogeneity issues in our research design. Our findings suggest that firms use financial policies to lower cash holdings, thereby reducing the risk of being expropriated by tainted directors. Moreover, our findings suggest that tainted directors use firm resources for their own private benefits, which ultimately results in a reduction of firm profitability. Results from this study are informative to regulators, policy makers and politicians, interested in preventing the pollution of criminal organizations in the legal economy.

Authors

• Pietro Andrea Bianchi, University of Miami

• Antonio Marra, Università Commerciale Luigi Bocconi

• DONATO MASCIANDARO, BOCCONI UNIVERSITY

• NICOLA PECCHIARI, BOCCONI UNIVERSITY