Productive and Unproductive Entrepreneurship within Crony Capitalism

Abstract

Cronyism is the practice of favoritism based on connections. The institutionalization of cronyism as a common practice within a business context can promote rewards for unproductive individual behaviors at the expense of productive behaviors. This study strives to explain and demonstrate how the prevalence of cronyism can increase unproductive entrepreneurship and decrease productive entrepreneurship within different countries. Moreover, this research elaborates on two major mediating mechanisms–market competition and institutional trust–through which cronyism influences entrepreneurial behaviors.