equity theory

Examples of equity theory in the following topics:

• Equity Theory

  • Equity theory states that perceptions of equality in the input/outcome ratio of employees determines their relative job satisfaction.
  • Equity theory was first developed in 1963 by John Stacey Adams, a workplace and behavioral psychologist, who asserted that employees seek to maintain equity between the inputs that they bring to a job and the outcomes that they receive from it, against the perceived inputs and outcomes of others.
  • Thus, groups will evolve such systems of equity, and will attempt to induce members to accept and adhere to these systems.
  • According to equity theory, the person who gets "too much" and the person who gets "too little" both feel distressed.
  • Employees expect a fair return for what they contribute to their jobs, a concept referred to as the "equity norm."

• Equity Finance

  • Companies can use equity financing to raise money and/or increase shareholder liquidity (through an IPO).
  • Financing a company through the sale of stock in a company is known as equity financing.
  • Firms obtain capital from two kinds of sources: lenders and equity investors.
  • According to finance theory, as a firm's risk increases/decreases, its cost of capital increases/decreases.
  • This theory is linked to observation of human behavior and logic: capital providers expect reward for offering their funds to others.

• Owners' Equity

  • Shareholders' equity is the difference between total assets and total liabilities.
  • Ownership equity may include common stock, preferred stock, retained earnings, treasury stock, and reserve.
  • If liability exceeds assets, negative equity exists.
  • Ownership equity is also known as risk capital or liable capital.
  • Accounts listed under ownership equity include (for example):

• The Accounting Equation

  • The accounting equation is a general rule used in business transactions where the sum of liabilities and owners' equity equals assets.
  • A company with $30,000 in liabilities and $10,000 in owners' equity would have $40,000 in assets according to the accounting equation.
  • The fundamental accounting equation, which is also known as the balance sheet equation, looks like this: $\text{assets} = \text{liabilities} + \text{owner's equity}$.
  • On the right side of the equation are claims of ownership on those assets: liabilities are the claims of creditors (those "outside" the business); and equity, or owners' equity, is the claim of the owners of the business (those "inside" the business).
  • If the company issues stock to obtain the funds for the purchase, then assets and equity both increase.

• Defining the Balance Sheet

  • Assets, liabilities, and ownership equity are listed as of a specific date, such as the end of the company's financial year.
  • A standard company balance sheet has three parts: assets, liabilities, and ownership equity.
  • Another way to look at the same equation is that assets equals liabilities plus owner's equity.
  • Looking at the equation in this way shows how assets were financed: either by borrowing money (liability) or by using the owner's money (owner's equity).
  • This balance sheet shows the company's assets, liabilities, and shareholder equity.

• Syndicates

  • The term is sometimes associated with anarchist theory, specifically anarcho-syndicalism, which represents an alternative to both the nation state and capitalist corporations.
  • A joint venture (JV) is a business agreement in which parties agree to develop, over a specific period of time, a new entity and new assets by contributing equity.

• Pay

  • By considering internal and external equity, a company can work toward a fair base pay system, attracting and retaining the best employees.
  • The manager looks at the internal and external equity to determine that $8.00 an hour is a fair base pay for workers.
  • An important question in external equity is how you define your market.
  • How do companies combine internal and external equity to decide the pay associated with each job?
  • Combine internal equity and external equity analysis to determine fair pay

• Employment Levels

  • The main problem with this theory is that such workers will likely wait while having jobs, so they are not counted as unemployed.
  • In Hollywood, for example, those who are waiting for acting jobs also wait on tables in restaurants for pay (while acting in Equity Waiver plays at night for no pay).
  • They are based on highly abstract theories – venerable, academic inventions, half misunderstood by those who are applying them today, and based on assumptions which are contrary to the facts… J.M.
  • Ideas associated with the Phillips curve questioned the possibility and value of full employment in a society: this theory suggests that full employment—especially as defined normatively—will be associated with positive inflation .

• Promotional Objectives

  • A promotional plan can have a wide range of objectives, including: sales increases, new product acceptance, creation of brand equity, positioning, competitive retaliations, or creation of a corporate image.
  • A promotional plan can have a wide range of objectives, including: sales increases, new product acceptance, creation of brand equity, positioning, competitive retaliations, or creation of a corporate image.

• Financing Company Operations

  • Examples of bootstrapping include: Owner financing, sweat equity, minimization of the accounts receivable, joint utilization, delaying payment, minimizing inventory, subsidy finance, and personal debt.
  • Examples of Bootstrapping: Owner financing Sweat equity Minimization of the accounts receivable Joint utilization Delaying payment Minimizing inventory Subsidy finance Personal Debt
  • In many cases, these services are in return for an equity stake.