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Does the Shadow Sector Affect the Profitability of Organizations: A Regional Perspective

Author

Listed:
  • L. V. Barabanova

    (Volgograd Regional Division of the Southern Main Branch of the Central Bank of the Russian Federation, Volgograd, Russian Federation)

  • S. V. Arzhenovskiy

    (Rostov Regional Division of the Southern Main Branch of the Central Bank of the Russian Federation, Rostov-on-Don, Russian Federation)

  • L. V. Antosik

    (Southern Main Branch of the Central Bank of the Russian Federation, Krasnodar, Russian Federation)

  • K. A. Tumanyants

    (Southern Main Branch of the Central Bank of the Russian Federation, Krasnodar, Russian Federation)

Abstract

The relevance of the study is due to the lack of works devoted to its topic and based on Russian data. The purpose is to estimate the impact of the shadow economy on the profitability of legally operating companies in Russia, taking into account regional heterogeneity. The information base consisted of annual data from Rosstat and the Federal Treasury for the period from 2014 to 2022 by region. For econometric modeling, the authors used models with composite error on panel data, with spatial effects, as well as a dynamic model with a lagging dependent variable of the profitability level of the regional economy, calculated by Rosstat. The control variables are the autonomy coefficient, the level of regional subsidies, real monetary income and the unemployment rate. The results of econometric modeling empirically prove that an increase in the share of the shadow sector in gross regional product leads to a decrease in the profitability of sales/services and, consequently, to a decrease in the efficiency of the official economic activities of enterprises. The results obtained a) expand the set of factors that can explain fluctuations in the profitability of enterprises in official statistics; b) allow to conclude that the benefits of legal entrepreneurial activity do not yet compensate for the advantages of unofficial business in Russia. In this regard, the state should continue its efforts to change the ratio between them in favor of observed entrepreneurial activity.

Suggested Citation

  • L. V. Barabanova & S. V. Arzhenovskiy & L. V. Antosik & K. A. Tumanyants, 2025. "Does the Shadow Sector Affect the Profitability of Organizations: A Regional Perspective," Finansovyj žhurnal — Financial Journal, Financial Research Institute, Moscow 125375, Russia, issue 5, pages 40-58, October.
    • Handle: RePEc:fru:finjrn:250503:p:40-58
    DOI: 10.31107/2075-1990-2025-5-40-58
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • R15 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Econometric and Input-Output Models; Other Methods

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