A loan you can't refuse: credit rationing and organized crime infiltration of distressed firms

Gianmarco Daniele, Marco De Simoni, Domenico J. Marchetti, Giovanna Marcolongo and Paolo Pinotti

No 25255, BAFFI CAREFIN Working Papers from BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy

Abstract: We show that credit constraints significantly increase the risk that firms are infiltrated by organized crime, defined as the covert involvement of criminal organizations in corporate decision-making. Using confidential data on criminal investigations, credit ratings, and loan histories for the universe of Italian firms, we find that a downgrade to substandard credit status reduces credit availability by 30% over five years and increases the probability of infiltration by 5%, relative to comparable firms. A local randomization design comparing firms just above and below the downgrade threshold confirms this result. The effect is pervasive across sectors and regions, but particularly strong in real estate, where the probability of infiltration rises by 10% following a downgrade. Infiltrated firms also display higher survival rates than other downgraded firms, despite similar declines in employment and revenues. These findings suggest that organized crime can serve as a financial backstop – sustaining non-viable businesses and potentially redirecting their strategies to serve criminal interests.

Keywords: Organized crime; Firms; Bank Credit (search for similar items in EconPapers)
JEL-codes: G32 K42 L25 O17 (search for similar items in EconPapers)
Pages: 55
Date: 2025
New Economics Papers: this item is included in nep-ent, nep-eur, nep-law and nep-sbm
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Working Paper: A Loan You Can’t Refuse: Credit Rationing and Organized Crime Infiltration of Distressed Firms (2025)
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