Monitoring quality of mafia-connected accountants

We investigate the monitoring quality of accountants with ties to the Mafia in their role as auditors for “clean” firms—those with no known ties to organized crime. Using a proprietary government database, we identify Italian firms with alleged ties to the Mafia through their executives, directors, or shareholders. We define as “suspect accountants” those who serve as auditors for these Mafia-connected firms, acknowledging their potential associations with criminal entities. We predict and find evidence that suspect accountants allow their “clean” clients (treatment group) greater discretion to engage in earnings management practices that reduce taxable income, compared to a control sample of “clean” firms audited by accountants with no known Mafia ties (control group)