Shadow Economy, Transparency, and Leadership in Business: Short-Run Dynamics and Long-Run Equilibrium

One of the most influential inhibitors of business sustainability is the shadow economy. Economic entities direct their efforts to distort their financial, accounting, or tax reporting in the direction of reducing the declared amount of income, hiding the results of their activities. This leads to a decrease in the level of their financial and investment potential, the level of trust in the business environment, transparency, and openness of the business. The findings confirmed that scientists and practitioners have not developed effective tools to increase business transparency. This provokes a more detailed study of the factors of confidence building in business and the development of tools for their effective use. This study explores the short- and long-run relationship between transparency and leadership in business and the level of shadow economy through time series analysis. The information base of the study is the World Bank and the International Monetary Fund data for EU countries and Ukraine for 2003–2020. The results confirm the hypothesis of the negative impact of shadow economy on the dynamics of indicators of transparency and trust in business and prove their dependence in the long run.