The Impact of Information and Communication Technology on Relation-Based Governance Systems

This study offers a new perspective to analyze the interface between information and communication technology (ICT) and corporate governance and how the interface differs across countries with different political and economic environments. We first introduce a theoretical framework of relation-based and rule-base governance that distinguishes economies/firms based on whether they reply on public rules or personal relations to govern business. It is found that economically more developed countries tend to be rule-based and LDCs tend to be relation-based. Based on the theoretical framework, the paper analyzes the interface between ICT and corporate governance, and the barriers to adopting ICT by relation-based LDCs. We argue that economic and legal system-specific governance effects is more fundamental than national cultural effects on ICT adoption, and that barriers to adopting ICT are greater for the LDCs that rely predominantly on relation-based governance. We expect that in the long run ICT will make rule-based, developed countries comparatively more competitive, thus exerting pressures on relation-based LDCs and accelerating the transition of LDCs from relation-based to rule-based governance. Increasing ICT compatibility, in turn, will facilitate LDCs transition to rule-based governance