Using Classical Political Economy and Managerial Stakeholder Theory to Explain JB Hi-Fi's Reporting Decisions

ACCT20074 Final Assignment
Term 1, 2018
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Question 1: Use Classical Political Economy Theory to explain JB Hi-Fi’sdecision to release its profit downgrade
in the way it did. Make sure you explain what Institutional Theory is, and support your observations with evidence
from the case study.
Answer: The Classical political economy theory was first invented by Karl Marx under first edition of Das Kapital, to describe
the Scottish and British economists that depicts ‘internal framework’ under “bourgeoise mode of production”. The political and
classical economy theory assists in analysing the manufacture, distribution, and exchanging the commodities under the market
societies. As per the classical thinkers, the determinants for the economic growth are the specialization of labour, human skill,
improvements of productivity, trade and markets expansion (Cohn, 2016). It was assumed that more markets will lead to more trade
that will lead to more growth and eventually will rise the tide lifts for all the boats. Though the truthfulness of the statement is not
yet confirmed. However in the case of JB hifi the chief executive has anticipated a fall in the profit or the year by 2.9%.With the help
of the classical economic theory it can be said that the main reason for the anticipation is competition that has been taking place in
the home appliance industry in Australia (Keohaneand Martin2014). In addition to the Institutional Theory that explanations
regarding why the organisations are inclined to adopt similar characteristics and form that might be implemented for bringing
legitimacy in the organisation –‘Organisations complies with the requirements as they are rewarded for that through increasing the
legitimacy, survival capabilities’ and resources. The company of JB hifi who had expected the profit to be $235 million and $240
million in 2017/18 has reduced the same to $230 million(Mosco, 2014).The main rational for lowering the annual profit forecast can
be also depicted with the Good Guys driving shares down by almost 10% low since late November. Moreover, the electronics retailer
reduced its overall profit outlook to $ 230 which was previously expected to be ranging between $ 235-$240. According to the
institutional theory, in several instances business corporations tackle the decreasing earnings by avoiding additional payment of tax.
In this particular situation, the statutory reports clearly showed that the company earned more amount of profit after tax however in
the consolidated report it reduced down by $ 5 to $ 10 million so that it can survive in the challenging competitive environment by
paying less amount of taxes in compared to other companies. Some of the other evidence of challenges to the company can be
depicted with performance of Good Guys whose profit will be sent to be impacted by unfavourable price competition(Cohn, 2016).
Therefore, as the overall market for the experiencing a drop-in sale it was more feasible for companies like JB hi-fi to release its profit
to downgrade so that it did not have to pay the additional amount of tax in a legitimate manner and still stay in the competition.
The challenging conditions in the home appliance market are expected to impact performance in the short term of the company;
therefore the shares dropped $2.29 that is 9%. The Institutional strongly focuses and are more resilient towards the social structure

aspects and takes into consideration the procedures through which the structures that includes various schemes, norms, rules and
routines are established as authoritative guidelines for social behaviour. In the given case study the company in order to adapt with
the social authoritative norms has taken the decisions. The chief executive of the JB hi fi along with the board is committed to
conduct ethically according to the high standards of the governance principle has considered the institutional theory and has taken
the decision of downgrading the profits for the year (Keynes, 2017).
References:
Mosco, V. (2014). Political Economy. In The Routledge Companion to Global Popular Culture (pp. 35-44). Routledge.
Cohn, T. H. (2016). Global political economy: Theory and practice. Routledge.
Keynes, J. N. (2017). The scope and method of political economy. Routledge.
Healey, P. (2017). Political Economy, Diversity and Pragmatism: Critical Essays in Planning Theory (Vol. 2). Routledge.
Keohane, R.O. and Martin, L.L., 2014. Institutional theory as a research program. The Realism Reader, p.320
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Exceeds Expectations
(High Distinction) 85-100%
Exceeds Expectations
(Distinction) 75 - 84%
Meets Expectations
(Credit) 65 – 74%
Meets Expectations
(Pass) 50 – 64%
Below Expectations
(Fail) below 50%
conclusions. conclusions.