Firms’ performance after demand contractions and firm exits

We leverage a quasi-experimental research design to estimate the economic effects of the two major anti-mafia policies in Italy, namely firm seizures and city council dismissals. Seizures imply firm exits that increase revenues and profit margins of surviving firms, mainly in municipalities with lower firm density and profitability, and among firms producing differentiated products. Dismissals imply demand contractions that reduce revenues, while profit margins are only marginally affected among firms competing locally. Province-level analysis accounting for spatial spillovers supports results at firm level. In both cases, the analysis suggests that the anti-mafia enforcement intervention reshapes market conditions through separate, yet related, mechanisms and that the degree of labour-cost adjustment determines the extent to which changes in revenues translate into profits.