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

ACCT20074 Final Assignment
Term 1, 2018
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Question 1: Use Classical Political Economy Theory to explain JB Hi-Fi’s decision 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.
Classical economist adheres to the ideology that there should be extensive freedom of market. However, they still particularly
acknowledge the role of the state in providing for the common good. In the same perspective, the theory also argues that it in some
circumstances, the market does not act as the best platform to serve the common interest. Likewise, JB Hi-Fi from its remarks points
out that it is more inclined towards competition as opposed to monopoly. Political economy therefore can be understood as a model of
an Economic System (O'brien & Williams, 2016). The model has a number of certain strengths stretching from a multifaceted view of
the economic as well as the ontology of connectivity. In attempts to expound further on this topic, research show the need to rely more
on explanations that touch on the economic rationality of accounting policy-makers (Marx, 2015). Anglo-Saxon accounting policies
can be used as the most profound logical guide for ideal countries because they are more concerned about reducing the cost of capital,
promotion of efficient allocation of economic resources as well as high rates of economic growth. The same is reflected by the
operations of JB Hi-Fi and hence this points out a very significant adherent to the main elements of the classical political economy
theory (Keynes, 2017). Relatively, there also exists the threat of traditional accounting systems which in the long run bring about
incompatibility with the changing business environment. At the end, this also poses a very significant threat to the goal of economic
development. The most profound solution for this challenge therefore is accounting policymakers making more rational decisions.

Additionally, the most important precondition for reform in this case is the existence of policymakers who are capable of overcoming
obstacles such as cultural obstacles. In summary, the main point presented have illustrated the importance of the ideology that there
should be extensive freedom of market, just as expressed in the operations and day to day running of JB Hi-Fi.
Institutional theory on the other end lays more focus on the role that an institutional environment can play in the development
of formal structures of the organisation. Market pressures, in this case, are not the primary determinant of the development of the said
formal structures. JB Hi-Fi has equally embraced innovative structures that aim at improving technical efficiency legitimized in the
environment (Hull, 2017). The main argument here is the fact that firms are influenced most of the time by what can be referred to as
normative pressure that arises from external sources like the state and in other cases pressures from within the company itself. Under
such conditions, it is notable that the institution will end up being governed by what can be termed as legitimate elements. The
legitimate elements, in this case, include standard operating procedures, professional certification and even state requirements. In the
long run, this often has a profound effect on task performance because it ends up diverting the needed attention. JB H-Fi, just as any
other giant companies in Australia, has acknowledged the fact that adoption of the said legitimate elements, increases the probability of
survival and competitiveness (Deegan, 2014).
References:
Deegan, C. M. (2014). Financial Accounting Theory (4 ed.). North Ryde, NSW.: McGraw Hill Education (Australia) Pty Ltd.

Hull, G. (2017). A treatise on political economy. Routledge.
Keynes, J. N. (2017). The scope and method of political economy. Routledge.
Marx, K. (2015). Capital: a critique of political economy, Volume 1. Arsalan Ahmed.
O'brien, R., & Williams, M. (2016). Global political economy: Evolution and dynamics. Palgrave Macmillan.
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Exceeds Expectations
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Meets Expectations
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Below Expectations
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