Bounded rationality, capital budgeting decisions and small business

The purpose of this paper is to provide insight into the capital budgeting decision-making of Canadian and Mexican entrepreneurs in small businesses in the food sector. The objective is to understand the capital budgeting decisions through the lens of bounded rationality and how these decisions are affected by different (national) contexts.

This is a comparative study in which the use of constructivist grounded theory allowed deep conversations about capital budgeting decisions. Data was collected from forty semi-structured interviews with entrepreneurs/managers in two regions, Mexico and Canada.

Insights from this study suggest that entrepreneurs’ capital budgeting decisions are not only taken under conditions of bounded rationality but also suggest a prominent role of context in how bounded rationality is applied differently towards investment decisions.

While the findings cannot simply be generalized, exploring how capital budgeting decisions are made differently across two regional contexts adds to the understanding of the nexus of context, bounded rationality and capital budgeting decision-making.

Using a bounded rationality lens, this study contrasts and explains similarities and differences in the entrepreneur’s capital budgeting decision-making within small businesses. The insights add to the body of knowledge and help entrepreneurs to reflect on their approach to decision-making.

The paper uses a less commonly applied approach to understand two under-researched regional contexts. We use constructivist grounded theory to explore entrepreneurs’ capital budgeting decision-making in small businesses in two regions, Canada and Mexico. The comparative approach and the findings add to the understanding of decision-making, highlight the prominent role of context and also challenge some insights from previous research.