Residual Equity Theory

AAA

DEFINITION of 'Residual Equity Theory '

An accounting concept that says that common stockholders take the greatest risk when they buy into a company; therefore, they should have sufficient information about the company's financial standing and performance to make sound investment decisions. Residual equity is calculated by subtracting the claims of bondholders and preferred shareholders from the company's total assets.

INVESTOPEDIA EXPLAINS 'Residual Equity Theory '

Residual equity theory was developed by George Staubus, Professor Emeritus of Accounting at Berkeley's Haas School of Business. A company's residual equity holders take the greatest risk of all the company's stakeholders because they are the last in line to be repaid if the company goes under. Residual equity theory is one of several equity theories; the others are proprietary theory and entity theory.



RELATED TERMS
  1. Queuing Theory

    A mathematical method of analyzing the congestions and delays ...
  2. Preference Shares

    Company stock with dividends that are paid to shareholders before ...
  3. Common Stock

    A security that represents ownership in a corporation. Holders ...
  4. Convertible Bond

    A bond that can be converted into a predetermined amount of the ...
  5. Convertible Preferred Stock

    Preferred stock that includes an option for the holder to convert ...
  6. Convertibles

    Securities, usually bonds or preferred shares, that can be converted ...
Related Articles
  1. What is the difference between preferred ...
    Investing

    What is the difference between preferred ...

  2. Why do some preferred stocks have a ...
    Investing

    Why do some preferred stocks have a ...

  3. A Primer On Preferred Stocks
    Bonds & Fixed Income

    A Primer On Preferred Stocks

  4. Knowing Your Rights As A Shareholder
    Investing Basics

    Knowing Your Rights As A Shareholder

Hot Definitions
  1. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  2. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  3. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  4. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  5. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
  6. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
Trading Center