Too Risky for Businesses?—Examining the Relationship Between Crime and Firm Registrations in India

Abstract

The study examines the relationship between crime and firm entry in India. Using district-level data for a decade, we find that an increase in crime is related to fewer firms registering in the district. The results are robust to estimation approaches that address the endogeneity related to crime variable. We also explore the pathways through which crime negatively affects firm entry in India. We provide suggestive evidence in favour of a fall in demand caused by the lower income of existing firms in the market as one of the reasons why crime lowers firm entry. Additionally, we show that fear of victimisation is also a possible channel that drives the negative relationship between crime and firm entry. However, we do not find any evidence that crime increases the expenses incurred by existing firms. The findings have important policy implications in terms of the importance of a stable environment for firm entry.