Institutional Distance Theory

To date many researchers discussed the antecedents and implications of institutional distance (Perkins, 2014), (Chao and Kumar, 2010, Gaur and Lu, 2007, Ionaşcu et al., 2004, Zaheer et al., 2012), (Shenkar, 2012b) but many studies focus on a different fraction of institutional factors at a time, which results in a large number of dimensions of institutional distance including regulatory, political, economic as well as cultural, cognitive and psychic distance (Bae and Salomon, 2010).

The most common approach to distance may still be the Hofstede scores comprising Hofstede’s four measures of culture (Hofstede, 1984). One reason why the Hofstede scores are appealing to international business scholars is because it comprises about 75 countries

Economic distance has enjoyed less attention in institutional distance research but is most often included as a complementary dimension in a more holistic approach (Bae and Salomon, 2010). The concept institutional distance has, in contrast to psychic, economic, political, or cultural distance, the advantage that it is a broader concept and is not as condemned to miss any necessary dimensions as more specific constructs (Hilmersson and Jansson, 2012).

In the article of Moore et al. (2015) institutional distance consists of three dimensions, i.e. regulative, normative and cultural-cognitive distance. Regulative distance is argued to consist of the governing rules and laws of a country, whereas normative distance comprises the social norms, beliefs and values. While regulative distance describes the mandatory regulations within a country, normative distance addresses the desired way of behaviour. Further, cultural-cognitive distance reflects the knowledge sets and shared understandings of the population in a country (Moore et

Therefore, they focus on regulative distance as the most important determinant of institutional distance, and argue that regulatory institutions include laws and regulations, which determine the framework for economic, legal and social relations (Moore et al., 2015).

Next, Cezar and Escobar (2015) argue that institutional distance is comprised by several different categories, without directly referring to any of the above-mentioned dimensions. In this study, institutional distance is assumed to consist of twelve indicators, i.e. corruption, government effectiveness, political stability, regulatory stability, credit rights, an information index, the cost to execute a contract, to register a property, to start a business, to ex- and import, protectionist policy and private credit (Cezar and Escobar,