5. Conclusion
Previous empirical analyses in international business used a single measure of institutional distance as if the effect of institutional infrastructure is homogeneous. Our typology of institutions suggests that there is a significant qualitative difference between general environmental institutions (GEI) and minority investor protection institutions (MIP). GEI institutions aim at serving the general societal interests by promoting a better general environmentfor all investors. These include the rule of law, efficacy of judicial system, contract enforcement, accounting standards and the like. On the other hand, MIP institutions promote and protect the interests of specific investors at the expense of other corporate or overall societal interests, and include provisions concerning minority shareholder rights, creditor rights, and the like. We find thatthe two categories of institutions not only load on two different factors in principal component analysis, but also have different impacts on FDI inflows in relation to the distance between home and host country. Improvement in the GEI of a country leads to an increase in FDI inflows from the US while improved MIP may discourage FDI inflows. As the institutional gap increases in MPI in favor of further protecting local minority investors in a country, US MNCs may be less willing to acquire local firms in that country because the potential for flexibility and profitability t achievable by international acquisitions might decrease. This contrasts with the tendency of most empirical studies that include institutional distance as a single homogeneous variable.
