(Not) Keeping up with the Joneses: Income Inequality, Social Cohesion and Crimes Against Businesses

Abstract

Rising inequality is one of the grand societal challenges of our time. Yet, its effects on firms – including multinational enterprises (MNEs) – and their operations have not been widely examined by IB scholars. In this study we posit that income inequality within a country is positively associated with the incidence and severity of crime experienced by businesses. Further, we propose that this relationship will be negatively moderated by social cohesion (in the form of greater societal trust and lower ethno-linguistic fractionalization) in these countries, such that social cohesion helps to offset the negative impacts of inequality on crime against businesses. We test these hypotheses using a comprehensive data set of 114,000 firms from 122 countries and find consistent support for our theses. Our findings, which are robust to different alternative variables, model specifications, instrumentation, and estimation techniques, advance our understanding of the intricate ways through which inequality affects societies worldwide, specifically via business organizations, and the challenges this may pose to MNEs and other businesses. They also offer important managerial and policy insights regarding the consequences of inequality and potential mitigation mechanisms.