Is financial stress a facilitating factor in cartel formation?

It is well-known that failing to achieve key organizational goals may pressure managers to commit fraud, but can it be a facilitating factor in cartel formation as well? The purpose of this study is to understand if firms known to have been in a cartel were under financial stress in the period leading up to the cartel formation. A trend analysis is used to examine the performance of the firms before, during, and after the cartel period. The study uses accounting data on firms belonging to sanctioned cartels. In addition, the data is used to determine if firms can achieve joint profit maximization and what happens to firm performance after the cartel is broken down. The results support the proposition that financial stress can be a motivating factor for cartel formation. Moreover, the results show that several firms fall short of benefitting from cartel participation and that cartel breakdown often leads to a worse than initial outcome. The conclusion is that financial stress increases the chances of firms engaging in cartel activity. And, that structural break analyses can likely detect cartels using trends in the performance of firms.

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Publication Details

Journal
Journal of Economic Criminology
Published
2025-01-09
DOI
https://doi.org/10.1016/j.jeconc.2025.100126
Primary Topic
Corporate Finance and Governance
Type
article
Field-Weighted Citation Impact
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article

Is financial stress a facilitating factor in cartel formation?

Jesper Fredborg Huric Larsen
Journal of Economic Criminology
Corporate Finance and Governance
article

Is financial stress a facilitating factor in cartel formation?

Jesper Fredborg Huric Larsen
article en

Abstract

It is well-known that failing to achieve key organizational goals may pressure managers to commit fraud, but can it be a facilitating factor in cartel formation as well? The purpose of this study is to understand if firms known to have been in a cartel were under financial stress in the period leading up to the cartel formation. A trend analysis is used to examine the performance of the firms before, during, and after the cartel period. The study uses accounting data on firms belonging to sanctioned cartels. In addition, the data is used to determine if firms can achieve joint profit maximization and what happens to firm performance after the cartel is broken down. The results support the proposition that financial stress can be a motivating factor for cartel formation. Moreover, the results show that several firms fall short of benefitting from cartel participation and that cartel breakdown often leads to a worse than initial outcome. The conclusion is that financial stress increases the chances of firms engaging in cartel activity. And, that structural break analyses can likely detect cartels using trends in the performance of firms.

Journal of Economic CriminologyVol. 7
Karlstad University (SE)
Decent work and economic growth
Openalex Percentile: Top 99%
Corporate Finance and Governance
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Is financial stress a facilitating factor in cartel formation? — Jesper Fredborg Huric Larsen · Journal of Economic Criminology (2025) | TGRS Research Map | TGRS