Explaining JB Hi-Fi's reporting decisions using Managerial branch of Stakeholder Theory

ACCT20074 Final Assignment
Student ID :Karandeep Singh. Student ID : 12030851
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Overall Mark (Total) out of 50: 0

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 coined by Karl Marx in the first edition of Das Kapital, for describing
the British and Scottish economists that sought to explain the ‘internal framework’ of the “bourgeoise mode of production”. The
classical political economy theory helps to analyse the production, distribution, and exchange of commodities in market societies. For
the classical thinkers, the determinants of economic growth is labour specialization, human skill, productivity improvements, trade and
the expansion of markets(Cohn, 2016). It was assumed more markets = more trade = more growth = rising tide lifts all boats. Whether
this is true or not is not 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 tis the Institutional Theory that
Provides an explanation about why organisations tend to take on similar characteristics and form that might be adopted in order to
bring legitimacy to the organisation –‘Organisations conform because they are rewarded for doing so through increased legitimacy,
resources and survival capabilities’. 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 theory stresses on the deeper and more resilient aspects of social
structure and considers the processes by which structures, including schemes, rules, norms, and routines, become 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 hifi 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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Meets Expectations
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Below Expectations
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Demonstrates a balanced
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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%
language.
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