ACCT20074: JB Hi-Fi's Profit Downgrade - A Political Economy View

This assignment provides an in-depth analysis of JB Hi-Fi's decision to release its profit downgrade, utilizing classical political economy theory and institutional theory. It explores how JB Hi-Fi's actions align with the principles of a free market economy and the influence of institutional pressures on its formal structures. The assignment further examines JB Hi-Fi's reporting decisions through the managerial branch of stakeholder theory, highlighting the importance of managing relationships with key stakeholders and prioritizing their influence on company resources. It contrasts the managerial approach with the ethical branch of stakeholder theory, ultimately concluding that JB Hi-Fi prioritizes stakeholders based on their power and influence.

ACCT20074 Final Assignment
Term 1, 2018
Student ID:………………………………. Student name……………………………………………………..
Marker’s overall comments: The markers may include any final
comments here.
Overall Mark (Total) out of 50: 0

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.
Marker’s Comments: The marker will provide feedback here. Mark (10):
0
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%
Demonstrates a balanced
and very high level of
detailed knowledge of
Demonstrates a balanced
and high level of
knowledge of core
Demonstrates a good
level of knowledge of
some of the core concepts
Demonstrates limited
knowledge of core
concepts by providing a
Demonstrates little, if
any, knowledge of the
core concepts with

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%
core concepts by
providing a very high
level of analysis. Utilises
current, appropriate and
credible sources.
concepts by providing a
high level of analysis.
Utilises mostly current,
appropriate and credible
sources.
by providing some level
of analysis. Utilises some
current, appropriate and
credible sources.
limited level of analysis.
Utilises few current,
appropriate and credible
sources.
extremely limited, if any,
analysis. Utilises little, if
any, current, appropriate
and credible sources.
Quality of writing at a
very high standard.
Paragraphs are coherently
connected to each other.
Correct grammar,
spelling and punctuation.
Quality of writing is of a
high standard. Paragraphs
are mostly well
structured. Few grammar,
spelling and punctuation
mistakes.
Quality of writing is of a
good standard. Few
grammar, spelling and
punctuation mistakes.
Some problems with
sentence structure and
presentation Frequent
grammar, punctuation
and spelling mistakes.
Use of inappropriate
language.
Quality of writing is at a
very poor standard so
barely understandable.
Many spelling mistakes.
Little or no evidence of
proof reading.

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%
The assessment presents
a detailed and focused
summary of the ideas
presented; drawing clear
and well thought-out
conclusions.
The assessment presents
a fairly detailed and
focused summary of the
ideas presented; drawing
fairly clear and well
thought-out conclusions.
The assessment presents
a somewhat detailed and
focused summary of the
ideas presented;
providing some evidence
of conclusions.
The assessment provides
limited detail with no
clear summary of the
ideas presented; drawing
limited conclusions.
The assessment fails to
provide any clear
evidence of the ideas
presented; drawing no
clear conclusions.

Question 2: Use the Managerial branch of Stakeholder Theory to explain JB Hi-Fi’s reporting decisions. Make sure you
support your observations with evidence from the case study
The Managerial branch of stakeholder theory
In the contemporary list of the best home entertainment retailers, JB Hi-Fi is amongst the companies that feature at the very top
of the list. The managerial branch of stakeholder theory can, therefore, be used as a very good example of breaking down the
company’s reporting decisions. Before defining its meaning, it is equally important to state that the stakeholder theory is a two-
branched theory. The two branches that holistically form the stakeholder theory is the management branch and the ethical branch. The
management branch of the stakeholder’s theory suggests that managers should vitally and delicately manage the relationship that exists
between various stakeholders and the organization in its attempts to ensure that the set organizational goals are achieved (Rashid,
2015). In its reporting decision, JB Hi-Fi took into account all of its stakeholders (Greenblat, 2018). A close look at its mode of
reporting also shows that its reporting decisions acknowledge the fact that some potential key stakeholders should be considered more
important than the rest. Consequently, its reports show some streamlined focus embedded on these stakeholders. Simply put, the
management branch of the stakeholders’ theory advocates for the argument that the more important the stakeholder is, especially
regarding their influence on the company resources, the more the company should invest its efforts in managing the relationship
between the two institutions. Regarding managing such relationships, the act of JB Hi-Fi disclosing all its vital information to its

relevant stakeholders is considered a very effective strategy for managing such relationships. The company, therefore, has ensured that
it is equally informed and at the forefront of redefining the nature of relationships that it has with its most important stakeholders. The
central argument, in this case, is the fact that the managerial branch of the stakeholder theory issues the utmost relevance to the role
and power that stakeholders have in influencing the management as well as control over resources in any institution (Deegan, 2014).
What this means, therefore, is that companies should focus more on re-establishing key relationships that touch on the link between the
company and it's most essential stakeholders because this is where the power is founded. Equally important however is the ethical
branch of the stakeholder theory. The ethical branch refutes the main arguments made by the management branch because its primary
concern is on the responsibilities of an organization, rather than its stakeholders. Understanding the role that this branch plays is
equally important to understand the most crucial aspects of the case study effectively. Subsequently, this branch refutes the idea that
the power that a stakeholder has should influence the rights of people. The central argument therefore for its proponents is that
stakeholders should receive the same level of influence and hence should equally benefit from the existence of the institution
(Fernando & Lawrence, 2014). An analysis of the two branches issues mixed signals when it comes to determining its effectiveness.
However, JB Hi-Fi’s stands by its decision not to respond favorably to all stakeholders but, streamline its response in accordance with
the power that one holds.
References:

Deegan, C. M. (2014). Financial Accounting Theory (4 ed.). North Ryde, NSW.: McGraw Hill Education (Australia) Pty Ltd.
Fernando, S., & Lawrence, S. (2014). A theoretical framework for CSR practices: integrating legitimacy theory, stakeholder theory,
and institutional theory. Journal of Theoretical Accounting Research, 10(1), 149-178.
Greenblat, E. (2018, May 8). JB Hi-Fi unapologetic on profit downgrade. The Australian.
Rashid, A. (2015). The influence of stakeholder power on corporate social responsibility: evidence from a relationship-based
economy. Social Responsibility Journal, 11(2), 270-289.
Marker’s Comments: The marker will provide feedback here. Mark (10):
0
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%
Demonstrates a balanced
and very high level of
Demonstrates a balanced
and high level of
Demonstrates a good
level of knowledge of
Demonstrates limited
knowledge of core
Demonstrates little, if
any, knowledge of the

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%
detailed knowledge of
core concepts by
providing a very high
level of analysis. Utilises
current, appropriate and
credible sources.
knowledge of core
concepts by providing a
high level of analysis.
Utilises mostly current,
appropriate and credible
sources.
some of the core concepts
by providing some level
of analysis. Utilises some
current, appropriate and
credible sources.
concepts by providing a
limited level of analysis.
Utilises few current,
appropriate and credible
sources.
core concepts with
extremely limited, if any,
analysis. Utilises little, if
any, current, appropriate
and credible sources.
Quality of writing at a
very high standard.
Paragraphs are coherently
connected to each other.
Correct grammar,
spelling and punctuation.
Quality of writing is of a
high standard. Paragraphs
are mostly well
structured. Few grammar,
spelling and punctuation
mistakes.
Quality of writing is of a
good standard. Few
grammar, spelling and
punctuation mistakes.
Some problems with
sentence structure and
presentation Frequent
grammar, punctuation
and spelling mistakes.
Use of inappropriate
Quality of writing is at a
very poor standard so
barely understandable.
Many spelling mistakes.
Little or no evidence of
proof reading.

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.
The assessment presents
a detailed and focused
summary of the ideas
presented; drawing clear
and well thought-out
conclusions.
The assessment presents
a fairly detailed and
focused summary of the
ideas presented; drawing
fairly clear and well
thought-out conclusions.
The assessment presents
a somewhat detailed and
focused summary of the
ideas presented;
providing some evidence
of conclusions.
The assessment provides
limited detail with no
clear summary of the
ideas presented; drawing
limited conclusions.
The assessment fails to
provide any clear
evidence of the ideas
presented; drawing no
clear conclusions.

Question 3: To what extent do current share prices anticipate future earnings announcements? Use the case study to support
your answer
Relationship between current share prices and future earnings announcements
Determining the relationship between current share prices and future earnings is a quiet complex task, especially when it comes
to that of JB Hi-Fi. However, because the rules cut across in every company, the variables that determine this relationship will be
generally determined. Regarding current share price, high profits do not necessarily mean that the stock price will be high. In the same
dimension, big losses do not automatically mean that the stock price will be low. Subsequently, this scenario already unfolds the
complexity involved in this situation in that the nature of the stock price has some inter-related factors that affect it. The central idea
that can be adopted from this is despite the fact that temporary profits or loss cannot distract fully affect the stocks of a company. It is
equally important to acknowledge the fact that if such situations are prolonged, it will automatically negatively affect stocks hence also
affecting future earnings announcements (Deegan, 2014). Drawing back relevancy from the case study, it is quite evident that there are
two factors that have a great influence on the current stock price of JB Hi-Fi, that is: current earnings and the promise of future
earnings (Greenblat, 2018). In summary, the main point in this case is, a lack of appropriate earnings over a long period of time
automatically affects the profitability of a company and hence ultimately drags a stock price down. At the long run, this has the power
to potentially affect future earning announcements hence also driving the company out of business (Even-Tov, 2017). The relationship