A Theory Of Business Enterprise Investment The Grounded Theory Approach

A Theory of Business Enterprise Investment: the grounded theory approach
Tae-Hee Jo University of Missouri— Kansas City December 8, 2003

Summary A business enterprise is a going concern, a social and real entity. In this context, an investment behavior of business enterprise is a social relation— incorporating conflict between ownership and control, conglomeration in size, anddecentralization in decision making process. As such, an investment theory must be empirically and historically contingent since economic structures change. Based on the grounded theory methodology, I constructed a more realistic investment theory of business enterprise. The theory provides an analytical explanation of motivations, planning, proposals, evaluations, selection, and revision process. According tothe various quantitative and qualitative data, I found that 1) profit maximization is not a primary goal of a business enterprise. Rather, enterprises have complex motivations such as long-run growth and survival, safety, social concerns and so on, 2) the planning and proposals stage reflect social relations around business enterprises— in particular, the separation of ownership and control.Moreover, data explicitly indicate that investment projects are mainly dependent upon internal funds, which implies that the management tends to accumulate capital for the sake of long-run growth and reproduction rather than the maximization of the money value of the firm. In terms of grounded theory methodology, all theories which are not historically and empirically grounded should be rejected.Moreover, unlike preexisting theories, the current investment theory incorporates micro- and macroanalysis simultaneously since the decision maker of the firm is also a social being.

A Theory of Business Enterprise Investment: the grounded theory approach
Tae-Hee Jo University of Missouri— Kansas City December 8, 2003

If only we knew more about the determinants of investment! But, unfortunately,our knowledge in this direction is still very meager. One might well ask. What is wrong with the theory of investment? Or, perhaps, what is wrong with the subject matter itself! For one thing, this variable— the pivot of modern macroeconomics— has apparently lived a somewhat nomadic like among the various chapters of economic theory. Perhaps it has not stayed long enough in any one place. Perhapsit has been ill-treated. (Trygve Haavelmo, Study in the Theory of Investment, 1961, p.3)

I. Introduction
Defining economics as “the science of the social provisioning” (Dugger 1996, p.31), we ought to answer the questions such as “how to meet social needs?”, and “what is the investment mechanism which provide goods and services for the society in the capitalist system?” Consequently, toanalytically explai the social provisioning process and n production mechanism, we have to elucidate the investment mechanism and structures. However, pre-existing and prevailing investment theories of orthodox and heterodox do not seem empirically and historically grounded. The orthodox theories are highly ideological, logical and deficient to explain the real world— capitalism. Therefore, the purposeof this paper is to construct a theory of investment of business enterprise that is s based on the grounded theory methodology that would provide “a complex analytical explanation or interpretation of the actual economic events represented in the data” (Lee 2002, p.796)

1

A business enterprise is a going concern. This ‘real’ entity has been developed along with the development ofcapitalism. In this respect, we need to recognize its role in the context of capitalism, and more importantly, its social aspects as well as economic significance. However, most orthodox economists consider the enterprise as a merely economic being which seeks profits maximization in a competitive market. As a result of this conception, the enterprise is a ‘fictional’ entity which implies that there is...