Introduction

Introduction

1. Theory

   • Theories help us make sense of the world we live in and provide a structure to understand our (social) experiences
   • not 'a hunch'
   • a set, cheme or system of hypothetical, conceptual and pragmatic principles
   • based on systematic and coherent (or logical) reasoning
   • provides explantion or an account of phenomena

2. How to develop

   • Inductive reasoning
     • The development of ideas or theories through observation
     • Inductive approach
       • An inductive approach to reaserch is based upon developing theory through observation of particular phenomena
   • Deductive reasoning
     • A way to explain a set of particular facts which is based more on the use of logic rather than observation
     • Prescriptive research
       • Research that is generally based on deductive reasoning an d provides prescriptions, or suggestions about waht people SHOULD do

3. Two main groups of theories

   • Positive
     • Can be tested and supported by referring to empirical evidence
     • Agency theory
   • Normative
     • Cannot be tested, proven or disproven
     • Continuously contemporary accounting

4. What is a good theory

   • Falsificationist
     • Describing a philogophy that uses experiment and observation to attempt to show that a scientific theory is false, rather than attempting to verify it
   • a 'good' theory should generate hypotheses or predictions that have the potential to be rejected
   • According to Positive Accounting Theory (PAT) managers who gets bonuses based on accounting profits will adopt income-increasing accounting methods. This hypothesis can be tested and therefore has the potential to be rejected
   • A Rejection leads to refinement or abandonment of pre-existing theory
   • A theory can never be proved, though it might be the ‘best’ available at a particular point in time
   • Evidence can only ‘support’ a particular theory (rather than ‘prove’ a theory)
   • Researchers should look for observations that do not fit the theory
   • Theory develops through trial and error

5. Evaluating theories

   • Through Logical Deduction
     • No need to refer to 'real-world' obsesravations
   • Evaluating the underlying Assumptions
     • Assumption: An assumption is something taken for granted or accepted as true without further proof

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