Classical economic political was developed by Adam Smith who is considered one of the fathers of economics. He is known for advocating for a non-capitalist society for institutions. He envisaged a situation where the government and another stakeholder only operated as night watchmen for the organization. For him, organizations were supposed to run professionally without influence from external actors. The external factors that his theory referred to were any influences that weren’t organizationally based. The external factors include; individual states, market influences and stock factors (Joseph 2014).
From his reasoning there developed further reasoning’s that were in agreement and others in disagreement. The second line policies that deconstructed his theory reasoned that organizations could not stand on their own. That for the organizations to develop other external factors had to influence their operation. This line of thought was importantly promoted by Richard Vice who was also a philosopher. In the JB hi-fi company, there are external factors that influence their operations. This is preferably a contextualized line of thought (Knights and Willock 2016). The concern from ASX who demand an apology for profit downgrade. This, therefore, proves the economic-political view of Richard Vice, that the tendencies and operations of an institution are dependent upon the contextualized policies. ASX is acting from its systems of ensuring the stock prices of a company remain normal. They are therefore concerned with the drop in stock prices of the company to about 10%, one that has never be seen for the past few years (Joseph 2014).
Then came another group or line of thought led by economist Coase. They argued the functions of the institutions are the ones that influenced the contextualized factors. That companies or organizations made private decisions and their individual decisions, when implemented, would affect the external factors. Therefore they reasoned that the main economic, political players are the organization. For instance, the profit downgrade by the JB hi-fi company is the one that has led to the course of action of the ASX as external factors. The fact causes the effect of the ASX in demanding an explanation there is a profit downgrade. The example, therefore, proves that it’s the organization that drives the external factors (Joseph 2014).
It is from this diverse argument that institutional theory develops. The institutional theory argues that; all institutions make decisions that are influenced by the existing environmental factors. The method refers to externalities as actors. The institutional way further defines that externalities or actors exclude organizational history. A company can use their account in making a decision, and that won’t be considered an externality. Apart from history, that organization can use personalities in the organization, and that would not be an externality. The theory refers to this as path independence. The JB hi-fi has used path independence in giving their submission about the profit downgrade. The company has failed to apologize for profit downgrade during its submissions, and this is a proof of their path independence and not dependant on the market abilities of its share prices and stocks in the market (Zakim 2018).
The other perspective of the institutionalism is the realist perspective (Dunning 2014). Realist institutional theory acknowledges the existence of this external factors. However, the institution shows that these actors are least of their concerns. They act in their capacity and not concerned with the policies of the actors. In the JB hi-fi case, the company operates without considering what the ASX will think or relate to them. They don’t focus on the profit downgrade but instead give a more exclusive report that shows, the concern of the ASX is not the primary concern but just a little one among many. They, therefore, acknowledge that the market exists but not by the policies of the actors (Fernando and Lawrence 2014).
Stakeholders are talented people who have a say in the operations of an institution. They are entitled to various decisions in the company. They are allowed since they provide different support to the company or organization. The support they provide includes financial, marketing and customer base. The stakeholders include retailers, stock exchange companies, influential media and the state. The JB hi-fi company has ASX as a stakeholder since it’s involved in selling its shares and stock prices. They are therefore entitled to question or even demand an explanation about the profit downgrade experienced by the company. They are consequently within their legal line when they ask an apology from the JB hi-fi electronic company (Bristow, Mowen and Krieger 2015).
The stakeholder theory, therefore, operates on this basis. The theory, however, is divided into the managerial branch. Managerial branch theory gives powers to the organization’s managers than the stakeholders. Managers are given the role in deciding on which stakeholder is more important than the other. The managers can, therefore, choose to satisfy the expectations of an influential media than a financial stakeholder. They will be acting within the managerial branch of stakeholder theory. In the JB hi-fi decision in not giving an apology to the ASX as a stakeholder. The decision shows that they prefer their retailers as stakeholders than the ASX. They, therefore, prefer to satisfy the expectations of the retailers than the ASX (Boley, McGehee, Perdue and Long 2014).
Importantly the managerial branch of stakeholder theory determines the bond between the organization and the various stakeholders. Closer friendships and relationships would mean the managers give a lot of preference for the stakeholder with the most intimate ties. Therefore, when the managers don’t satisfy the expectations of a stakeholder, it, therefore, means they are not in the proper relationship at all with the organization. The JB hi-fi company, therefore, does not have a good relationship with ASX. This lousy relationship is proven by the fact that they decline to give an apologetic explanation to the ASX even when they know that the ASX is entitled to questioning their decisions (Olusanya 2016).
Managers have the power to analyse a stake holders concern. After analysis, they are not obliged to work with by the expectation of the stakeholder. They are supposed to act by the decision that focuses on improving the company and the stakeholder. It is the interest of the company that should come first before the expectations of the stakeholder (Rosenbloom 2016). A stakeholder might have raised a valid concern, but the matter might affect the operations of an organization. The moment it touches the services, the managers are allowed to sideline such an interest. Such is the case with the JB hi-fi company from the case study. The managers have recognized the benefits of the ASX. They, however, feel the reaction of an apology will interfere with policies of the firm especially by stock prices and share prices. They, therefore, act in the best interest of the company which is to keep mum about the apology demanded by the ASX company. The decision, therefore, is taken in the best interest of the company and not a stakeholder who is also very vital (Hall, Pennington and Lueders 2014).
Share prices can be used to a considerable extent to predict future earnings. This is because of the following reasons;
Share prices determine the cash flow operation of a company at that moment. With increased share prices there is proof that there is improved cash flow within the company or organization. It is likely that a company with improved cash flow will fetch prices in the stock exchange market. The market prices when they are carried is a proof that the future earnings will improve. This is far most the most empirical way of determining future earnings depending on share prices. The method is called the effective formula of cash flow. In the JB hi-fi case, the concern by ASX is justified. The drop of the company’s share price by about 3% off the midpoint sales of the previous means there is reduced cash flow in the company. This reduced cash flow, therefore, predicts that the future earnings of the company might go down (Fernando and Lawrence 2014).
The stock analysis of the company can be used to predict future earnings of the company. The company can determine factors that have led to the share price. When the elements are determined, they are improved over time. It is therefore likely that improvement of such factors will lead to improved future earnings. Such factors include attracting more investors. Promoting the company’s cash flow and other strategic decisions made by the company. The prediction by ASX is justified concerning the drops of share prices of the JB hi-fi electronic company. The company is thus right in feeling that the organization is applying a strategy that is not working for them. The ASX is therefore forced to question the policy of the company. They think the JB hi-fi is using an approach that is affecting their stock prices and that will lead to dropped future earnings (Vijitha and Nimalathasan 2014).
Stock prices are essential in attracting investors to the company. Investors observe share prices, and if they are right and favourable, they decide to invest in the organization. When investors come to the company, it is very likely that the future company earnings will go up since they give the company financial boost. On the other hand drop in share prices will lead to the withdrawal of some investors. Other investors will also sell their shares. This will, therefore, lead to the decline in future earnings. The next gains are likely to drop. The concern also applies to JB hi-fi whose share prices have dropped significantly (Felimban and Nguyen 2018). These drop in share prices, therefore, means that there is the likelihood of many investors selling their shares or withdrawing their contract with the company. Once they sell their shares or withdraw the future earnings of the JB hi-fi won’t remain the same again. This is proof that share prices can predict future earning based on investors and share price holders (Kim and Zhang 2016).
The strength of a stock market which holds the share prices can be used to predict the future earnings of the companies under it. A strong stock market like the ASX is likely to have huge organizations at the top of its listings. Therefore if a company drops its share prices, it’s a proof of how the company’s future earnings could easily fall (Motokawa 2015).
Decision making about business matters can be challenging and quite complicated. Investors looking to sell shares of the company might regret if the company later makes significant growth. They also are likely to gain if the company will then form the profit. This complexity in decision making can be solved by following a decision-making model. The Brunswick decision-making model, therefore, can be used.
The model has significant subsections that would help to make an informed decision about the selling or retaining shares of the JB hi-fi company.
The first significant subsection is considering the basics facts that underlie the decision. These basics facts include the necessary events that underlie. In financial situations like the case of JB hi-fi company, the investors might consider looking at critical financial statements. The financial statements should have any biased information , therefore, includes; profit and loss account book, liabilities and assets book and investor’s book (Hall , Pennington and Lueders 2014).
The investors will, therefore, decide after keen analysis of this essentialities. Their decision will, thus, be evidenced by such documents.
Secondly, the model prefers that at this stage there should be a pre-decision made. This decision is referred to as the underlying decision. An underlying decision can even involve not choose at all. It should be remembered that the decision at this phase is based on the prior considerations. The investors might therefore have made up their mind not to sell the shares since the financial statement of the company reflect a stable format for the future of the company (Hörisch, Freeman and Schaltegger 2014)
The second tier is considering the complexities of the issue. Complications are the factor that complicates the necessary or essential elements. These series of events make it difficult to pick a decision over the other because each of them has an influence on the basics. For the case of JB hi-fi, the sinking prices of the shares are the dynamic issue. It creates interrelationships with the financial statements elements, thus complicating the decision. The investors must therefore create an analysis of these complexities on what has caused them and why they might affect the company moving forward. At this point, the investors can consult widely with other vital stakeholders while considering their decisions too (Tung et al. 2017).
At the end of this session there investors should have an observational decision. An observational decision is made up of the necessary arrangement and the complexities considerations. It is also referred to as action decision because it is made up of a real course of action. For example, at this point, the investors should have decided that after the analysis, they will sell all their shares of the JB hi-fi company. This is because however much the financial statement is right, the 10 % stock drop is terrible to come back from (Fernando and Lawrence 2014).
The last tier is the correct decision. The right choice is based on the analysis of the effects of the action decision made earlier. When the action decision is made, some consequences will follow. The correct choice is therefore achieved by analyzing what results are likely to accrue from the action decision. The investors might consider the consequences of their actions and then decide to sell their shares or retain them depending on the results they shall have assessed (Kent and Zunker 2017).
A capitalist society is one that one group takes advantage of the other in numerous ways. The benefit is done so that the oppressed fail to realize they are being taken advantage of. Many debates have developed theory in trying to prove that accounting is one of the tools used to achieve capitalism in the recent years. From the critical overview below the assumption can be true. Capitalist society uses accounting as a tool for taking advantage of the haves over the have-nots (Waldo 2017).
The presence of existence of particular firms who are allowed to question the accounting decisions of the other without listening to their opinion is capitalist. When the decision made doesn’t favour their own, they refer to that decision as inaccurate. They hide behind accounting claiming that the decision affects accuracy and finding of the accounting rules. All these accounting rules are set so that they satisfy the agenda that they are silently pushing for. This explains where the haves hides behind accounting in preventing the have-nots to make a decision makes accounting a tool for capitalists. For example in the case study, the ASX is demanding apologies from JB hi-fi company who have made their decision terming them as accountably inconsistent (Heywood 2015).
Secondly is the limiting of accounting information to very few people while claiming it is professional and vital. In a firm, only a few professionals and top-tier management are allowed to access accounting information. The others therefore since they lack knowledge cannot make any decisions concerning the decisions of the company. This way of sidelining some people is one way that the haves use to deprive the have-nots of financial information. The, therefore, have to follow them blindly since lack of knowledge is lack of power. In the JB hi-fi study case the retailers and investors are not aware of the company’s financial debacle until the ASX demands an answer about profit downgrade. The company has therefore used accounting ability to deprive the haves of information. This is also a proof where accounting has been used for capitalist purposes (Zimmerman, Fogarty and Jonas 2017).
Additionally, accounting decisions are never objective. Accounting decisions are usually made out of the crisis by a few people. This few people act on behalf of several others. This is a perfect comparison of a capitalist society where the few who make a decision make the others feel they have their interest in solving the crisis. The JB hi-fi company has decided for the investors and other stakeholders concerning the fall of the prices at the stock market. They have therefore used accounting as a basis for their decision. This is proof of how the capitalist use is accounting as a tool to brainwash the have-nots in the society (Heywood 2015).
Lastly is the use of a few chosen firms that act as audit firms (Schneider 2017). The limited audit firms are limiting the access to financial information from the general public. In a firm where accounting data is analysed daily. The audit firms only come after sometimes and declare the secure accounting fit. The declaration is made as a brainwash for the have-nots to continue believing in the system. A null declaration, therefore, is done to attract the attention of the general public about the effects of these accounting issues. Evident in the case study where only ASX is allowed to raise the alarm about the financial debacle of the JB hi-fi company (Nurunnabi, M., 2015).
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