Using Classical Political Economy and Managerial Stakeholder Theory to Analyze 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’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.
The classical political economy theory can be used as an effective model in breaking down key decisions made by JB Hi-Fi
when it released its profit downgrade. The theory significantly expounds on crucial elements that touch on key financial decisions.
When one examines the concept of classical political economy, the first idea that comes to mind is a school of thought that is primarily
embedded on the ideology that market economies are self-regulating systems that are extensively governed by natural laws. The main
proponents of the theory include thinkers such as John Stuart Mill and Adam Smith. Production as well as exchange extensively
influence the operations of the theory, and hence just as in the case of JB Hi-Fi, the extensive concern is issued to the two variables.
Just as the main arguments propelled by the top management of JB Hi-Fi, the theory also holds that the wealth of any nation or
institution is not exclusively embedded on the gold in the monarch’s coffers but on the contrary, it is determined by national income
(Deegan, 2014). Relatively, in attempts to associate this with the case study of JB Hi-Fi, the company finds utmost pride in being
pragmatic liberals. What this means is that the company actively advocates for market freedom considering the pros involved with such
a strategy. Additionally, it is also vital to acknowledge the fact that JB Hi-Fi operates on the ideology that the market does not always

serve all stakeholders common interests. Also, in its defense as to why it released its downgrade to the investment conference, JB Hi-Fi
argued that the institution values the concept of transparency when it comes to crucial information touching on sensitive market
initiatives (Greenblat, 2018). Additionally, it also argued that it did not pay particular attention to the effect that the downgrade would
have on its share price. Crucial lessons can, therefore, be learned from this case study. At the top of the list, is the crucial role of the
classical political economy in crucial financial decisions. Some of the concepts examined under the theory point out the need for a free
market economy as well as the natural laws that defines it (Mosco, 2014).
The second phase of this segment will particularly examine the concept of Institutional Theory and how it relates to the case
study. Institutional theory, argues that an environment of an institution has a very vital influence on the formal structures of the
organization. Unlike what most people think, market pressures do not play an exclusive role in the articulation and development of the
said formal structures (O'brien & Williams, 2016). In the same perspective, JB Hi-Fi is extensively influenced by normative pressures
that are drawn from stakeholders, competing entities, and in other cases internal pressure from within the company. In relation, this
brings rise to what can be seen as legitimate elements. From a third-party analysis, the key legitimate elements that influence the
operations of JB Hi-Fi include state requirements, standard operating procedures, and professional certification. The central argument,
therefore, remains, from an analysis of the company’s operations, it is justified to argue that effective usage of legitimate elements
enhances the chances for increased probability of survival as well as competitiveness (Suddaby, 2015). Subsequently, in the long run,
this is one of the greatest potentials associated with the Institutional theory.

References
Deegan, C. M. (2014). Financial Accounting Theory (4 ed.). North Ryde, NSW.: McGraw Hill Education (Australia) Pty Ltd.
Greenblat, E. (2018, May 8). JB Hi-Fi unapologetic on profit downgrade. The Australian.
Mosco, V. (2014). Political Economy. In The Routledge Companion to Global Popular Culture (pp. 35-44). Routledge.
O'brien, R., & Williams, M. (2016). Global political economy: Evolution and dynamics. Palgrave Macmillan.
Suddaby, R. (2015). Can institutional theory be critical?. Journal of Management Inquiry, 24(1), 93-95.
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Exceeds Expectations
(High Distinction) 85-
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Exceeds Expectations
(Distinction) 75 - 84%
Meets Expectations
(Credit) 65 – 74%
Meets Expectations
(Pass) 50 – 64%
Below Expectations
(Fail) below 50%
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Meets Expectations
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Below Expectations
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