Cronyism: a cross-cultural analysis
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Cronyism: a cross-cultural analysis Naresh Khatri1, Eric WK Tsang2 and Thomas M Begley3,4 1 Health Management and Informatics, University of Missouri, Columbia, USA; 2Business Department, Wayne State University, Detroit, USA; 3Department of Management, University College Dublin, Ireland; 4International Management Group, Northeastern University, Boston, USA
Correspondence: Dr N Khatri, Health Management and Informatics, University of Missouri, 324 Clark Hall, Columbia, MO 65211, USA. Tel: þ 1 573 884 2510; Fax: þ 1 573 882 6158; E-mail: [email protected]
Received: 17 October 2003 Revised: 18 March 2004 Accepted: 29 June 2005 Online publication date: 19 October 2005
Abstract The devastating economic effects of the Asian financial crisis and US corporate scandals have underscored the need to strengthen corporate governance provisions. Although cronyism has been suggested as a leading cause of the two crises, it has received little attention from scholars. In this paper, we analyze the concept of cronyism and argue that it comes in various guises arising from different motivational bases and power dependence relations. We distinguish cronyism from related constructs and posit that it is a form of corruption with different dynamics from other forms. We advance propositions on its likelihood of occurrence across cultures and develop a typology of cronyist exchanges. Journal of International Business Studies (2006), 37, 61–75. doi:10.1057/palgrave.jibs.8400171 Keywords: cronyism; individualism; guanxi; corruption; cultural syndromes; relational models
Introduction In many affected countries, the Asian financial implosion of 1997 brought opaque business transactions to the forefront. A purported primary contributor to the crisis was the reportedly widespread practice whereby executives in Asian financial institutions funded questionable business transactions by family and friends (Pagano, 2002, 2003; Waldron, 2002; Chiu and Joh, 2004). As one of a host of similar acts of kinship patronage collectively labeled crony capitalism, this practice subverted economic competitiveness as banks that failed to price their loans based on credit risk received poor returns from large segments of their portfolios (Economist, 1998; Asiaweek, 1999). The practice of cronyism in Western countries has drawn relatively little attention. However, the recent corporate governance crisis in the United States has arisen from a magnitude of corporate malfeasance that suggests a need for in-depth examination of systemic features (Adler, 2002). Davis argued that the American economic system has evolved its own brand of crony capitalism: Far from being a system characterized by impersonal, calculative relationships, the American corporate system is thick with social connections among the most important decision-makers. Corporate directors and the executives they oversee, financial analysts, investment bankers, and state legislators responsible for cre
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