Theory and Hypotheses

Development
 Group D
Name Roll

1. Mahim Hossain 26049

2. Md. Firoj Hossain 26251

3. Ashrafur Rahman 25119/26221

4. Ashraful Islam Asif 26063

5. Jobayer Ahmed 26057

Theory
What is theory?
Theory is a study which involves comprehending and interpreting abstract concepts, principles,
and frameworks within a specific field of knowledge.
It’s about gaining insight into the underlying mechanisms, relationships, and patterns that shape
various phenomena.
The goal of Theory

To know about the relationships between two or more variables which:

•Enables informed analysis,

•Application and innovation within a given domain
 The significance of theory

It provides:
•structured explanations
•insights and predictions about real-world phenomena

Theoretical frameworks serve as foundational tools for

•organizing knowledge
•guiding research &
•fostering deeper understanding within various fields
The significance of theory
Theories offer a common language for researchers and practitioners to communicate complex
ideas and findings. Theories help to:
•identify patterns
•establish causal relationships &
•drive innovation by suggesting new ways of thinking or approaching problems.
Overall, theories play a pivotal role in advancing knowledge
driving progress & and shaping the evolution of disciplines.
variable

A variable is anything that can take on varying values.

Example:-production unit, motivation, absenteeism

There are mainly four types of variables used in research.

1.Dependent variable

2.Independent variable

3.Moderating variable

4.Mediating variable
 Dependent variable and independent variable

Dependent variable
The dependent variable is the variable that is being measured or tested in an experiment.

The researcher`s goal is to understand and describe this variable.

For example student CGPA, stock market price

Independent variable
The independent variable in a research study is what the researcher is changing in the study.

The independent variable is responsible for changing the dependent variable.

Dependent variable and independent variable

For example:

New Stock
Product market
success price

independent variable dependent variable

Moderating variable

Moderator is a variable that affects the strength of the relationship between independent and
dependent variables.

For example relationship between salary and job performance depends on motivation\

Moderating variable
motivation

Job
salary performance
Mediating variable

A mediator variable is a variable that explains the relationship between a predictor variable and a
criterion variable.

For example the independent variable (workforce diversity) influences the dependent variable
(organization effectiveness), and the mediating variable of the diversity in the workplace is
(creative synergy).

Mediating variable

Workforce Creative Organizational

diversity synergy effectiveness
Theory development
How theory is generated?
 The theoretical framework is the foundation of the entire deductive research project.

It is logically developed, describes and elaborates relationships among the variables
according to the problem situation.

The theory process is based on interviews, observation and literature review.

The component of the theoretical framework

The variables considered relevant to the study should be clearly defined.

The conceptual model that describes the relationships between the variables in the model should
be given.
There should be a clear explanation of why we expect these relationships to exist.
 Hypothesis

 A tentative theory.

 An educated guess.

Guide research and experimentation

 Specific, testable, falsifiable.

Crafted as a declarative statement.

Hypothesis.

PROVIDES A CLEAR ENABLES OBJECTIVE CONTRIBUTES TO

DIRECTION. TESTING & VALIDATION. INFORMED DECISIONS..
Relationship between theory and hypothesis

Role in
Scope
research

Theory and
Interdependency hypothesis
testability

Outcome
Types of hypothesis

1 ) “If – then” type hypothesis.

Example: If the price of a product is reduced, then the demand for that product will increase.

Conditional statement Predicted outcome

(independent variable ) (Dependent variable)
Types of hypothesis
2) Based on direction
 Directional hypothesis ( one-tailed hypothesis)

Example: Increasing the training hours will lead to a statistically significant increase in
productivity.
Non-directional hypothesis (Two-tailed hypothesis)

Example: Changes in interest rates have an effect on stock market returns.

Types of hypothesis

3) Based on formation
Null- hypothesis (

Example: There is no significant difference in sales between the current store layout and the new
store layout. {: μ1 = μ2}
 Alternative hypothesis (

Example: There is a difference in sales between the current store layout and the new store layout.

: μ1 ≠ μ2}.
How hypotheses are developed from theories?
There are 8 steps in how hypotheses are developed.
Theory: Agency Theory
Step 1: Identify Key Concepts and Variables: Agency theory focuses on the relationship between
principals (such as shareholders) and agents (such as managers) in an organization. It explores the
potential conflicts of interest and agency costs that can arise when agents act on behalf of
principals.
Step 2: Identify an Area of Interest: Suppose a company is interested in understanding whether
CEO compensation structure affects their decision-making behaviour and company performance.
Step 3: Formulate a Research Question Research Question: How does the structure of CEO
compensation influence their decision-making behavior and company performance?
How hypotheses are developed from theories?
Step 4: Develop Hypotheses Based on the research question and the agency theory: we can
formulate hypotheses:
Null Hypothesis (H₀): The structure of CEO compensation does not significantly impact their
decision-making behaviour or company performance.

Alternative Hypothesis (H₁): The structure of CEO compensation impacts their decision-making
behaviour or company performance. And compensation structure tied to long-term performance.
How hypotheses are developed from theories?
Step 5: Testability and Predictions: To test these hypotheses, gather data on companies with
varying CEO compensation structures. Compare the decision-making behaviour and company
performance of CEOs with long-term incentive-based compensation to those with short-term,
fixed compensation.
Step 6: Data Collection and Analysis Collect data on CEO compensation structures, decision-
making behaviour (e.g., investment in long-term projects), and company performance metrics
(e.g., stock price, profitability). Analyze whether there's a correlation between compensation
structure and favourable decision-making behaviour and performance outcomes.
How hypotheses are developed from theories?
Step 7: Draw Conclusions If CEOs with long-term incentive-based compensation tend to make
decisions that lead to better long-term company performance it supports the alternative hypothesis
(H₁) and suggests that aligning CEO incentives with shareholder interests can influence their
decision-making behavior.

Step 8: Refinement and Further Testing Researchers could further investigate the specific
mechanisms through which compensation structures influence behavior, explore how different
industries or company sizes impact these relationships, and assess the potential drawbacks of
overly incentivized compensation
The Process of Testing Hypothesis
1. Formulate Hypotheses:
• Null Hypothesis (H0): No significant difference or effect.
• Alternative Hypothesis (H1 or Ha): The expected difference or effect.
2. Set Significance Level (α): Typically, α is set at 0.05.

Example: A pharmaceutical company testing a new drug (H0: No difference, Ha: The
drug is effective)
The Process of Testing Hypothesis
3. Data Collection:
• Collect a sample that represents the population.
• Ensure data quality and reliability.
4. Data Analysis:
• Apply appropriate statistical tests (e.g., t-test, chi-square test).
• Calculate the test statistic and p-value.
Example: Calculating the average test scores of students (t-test) to
determine if a new teaching method is more effective.
The Process of Testing Hypothesis

5. Analyze Results:
• Compare the p-value to the significance level (α).
• If p-value < α, reject the null hypothesis (H0).
• If p-value ≥ α, fail to reject H0.

6. Conclusion:
If H0 is rejected, accept Ha.
If H0 is not rejected, no evidence to support Ha.

Example: p-value = 0.02 (α = 0.05), reject H0, conclude that the new drug is effective
The Process of Testing Hypothesis
7. Drawing Conclusions:
• Summarize the findings and their implications.
• Discuss the practical significance.
8. Reporting Results:
• Explain how the results can inform decision-making or future
research.
Example: Conclude that the new drug is effective, leading to its
production and potential benefits for patients.
The Importance of Valid Hypothesis
Guiding Research.

Testable Predictions

Objective Evaluation

Foundation for Theory Development

Rigorous Methodology

Efficient Resource Allocation

The Importance of Valid Hypothesis
Decision-Making and Problem Solving

Communication of Findings

Continuous Improvement

Quality Assurance
Thank You