The Role of Business Entertainment in Economic Exchanges: A Governance Perspective and Propositions

Abstract

While entertainment activities in private business settings (i.e., business entertainment) are widely seen all over the world, issues about their prevalence have remained unresolved in the literature. This study takes an institutional approach to elucidate (1) the governance role of business entertainment in economic exchanges, (2) the mechanism through which business entertainment plays this role, and (3) the conditions under which business entertainment plays a greater role to facilitate economic exchanges. Our starting point is that economic transactions are governed through a combination of market rules, legal restraints, and social norms. We argue that business entertainment plays a governance role by boosting the power of social norms to regulate the behaviors of economic actors. As such, business entertainment should be more prevalent under the conditions where social fabrics are dense but market and legal infrastructures are underdeveloped. This governance approach provides a common ground to accommodate the positive versus negative views on business entertainment advocated by two camps of researchers in management, economics, and sociology. It also offers useful guidelines for policymakers to regulate, and for executives to manage, this prevalent but often misunderstood business practice.

Determinants of effective client entertainment in China: a transaction governance approach

“…Non-market institutions include formal legal governance and informal social relational governance (Macneil, 1978;North, 1991), both can supplement market forces to regulate the behaviors of economic actors. Depending on its cultural roots and historical heritages, each society features a unique combination of market, legal and social relational mechanisms in governing economic transactions (Bradach and Eccles, 1989;Sun and Chen, 2017).…”

“…Client entertainment has the potential to improve the above conditions for social relational governance to work more effectively in regulating exchange relationships, i.e. by promoting reciprocal behavior, enhancing long-term orientation, and weaving communal networks (Sun and Chen, 2017). Client entertainment is a social exchange that involves a giver and a receiver or a buyer and seller in the accompanied economic exchange.…”

“…The involvement of the business association assures a higher degree of cooperation during the survey. Second, this study was built on the framework that economic transactions are governed through a combination of market, legal, and social relational mechanisms and client entertainment plays a governance role through reinforcing social relational governance (Sun and Chen, 2017). As such, the effectiveness of client entertainment in facilitating exchange relationships depends in part on the market and legal infrastructures in a particular region.…”

“…Consequently, at the firm level, we still do not know why Chinese firms persistently engage in client entertainment even if facing severe penalties from the government. Building upon the framework of economic transaction governance, which posits that economic transactions are governed through a combination of market, legal and social relational governance mechanisms and that client entertainment plays a governance role through reinforcing social relational governance (Sun and Chen, 2017), this study can explain the function and efficacy issues of client entertainment in China in a systematic manner.…”

Relationship versus Transaction Marketing in China: An Institutional Approach

“…The power of social relational governance can be enhanced through relationship marketing practices which generate trust and common values that harmonize mutual interests of buyers and sellers, thereby eradicating their opportunistic behaviors and forcing them to conform to exchange rules (Ouchi, 1980). Relationship marketing practices, such as client entertainment activities including dining, wining and gift-giving, can reinforce the power of social relational governance to support relational exchanges (Sun and Chen, 2017). Relationship marketing practices like client entertainment are actually a form of social exchange that has traditionally served a key role in nurturing social relations and facilitating information flow and economic exchanges (Mauss, 1925(Mauss, /1990LeCount, 2001).…”