Chapter 08 Unregulated Corp

Chapter 08 Unregulated corporate reporting decisions:
considerations of systems-oriented theories

1. In relation to Political Economy Theory, which of the following statements is false?
A. Political Economy Theory views society, politics and economics as inseparable.
B. Political Economy Theory is derived from Positive Accounting Theory.
C. Legitimacy Theory and Stakeholder Theory are derived from Political Economy Theory.
D. Political Economy Theory can be divided into 'classical' and 'bourgeois' political economy. theories
2. The difference between 'classical' and 'bourgeois' political economy theory is that:
A. 'Classical' political economy theory explicitly considers class conflict and the role of the state in its analysis,
while 'bourgeois' political economy theory does not.
B. 'Bourgeois' political economy theory explicitly considers class conflict and the role of the state in its analysis,
while 'classical' political economy theory does not.
C. 'Classical' political economy theory is a normative theory, whereas bourgeois' political economy theory is a
positive theory.
D. 'Bourgeois' political economy theory is a normative theory, whereas 'classical' political economy theory is a
positive theory.
3. Which of the following statements is false?

A. Legitimacy Theory is derived from 'classical' political economy theory.
B. Legitimacy Theory suggests that organisations will act in a way that society perceives as legitimate.
C. Legitimacy Theory relies upon the notion of the 'social contract'.
D. Legitimacy Theory asserts that organisations will attempt to ensure that society perceives their actions as
'legitimate'.
4. The idea of the 'social contract' is that corporations only exist because they benefit:
A. Shareholders
B. Governments
C. Managers
D. Society
5. The 'legitimacy gap' of a corporation will narrow when:

A. A corporation discloses good news about its behaviour but its actual behaviour declines.
B. A corporation discloses bad news about its behaviour but its actual behaviour improves.
C. Societal expectations of appropriate corporate behaviour increase.
D. None of the given options are correct.
6. Which of the following is not a means by which an organisation may attempt to legitimise its activities?
A. Adapting its output, goals and methods of operation to conform to prevailing definitions of legitimacy.
B. Attempting, through communication, to alter the definition of social legitimacy so that it conforms to the
organisation's present practices, outputs and values.
C. Asserting its right to operate under the existing regulatory framework that has been determined by society.
D. Attempting, through communication, to become identified with symbols, values or institutions that have a
strong base of legitimacy.
7. An example of a legitimising symbol would be:

A. The World Wide Fund for Nature assessing compliance with the Australian Minerals Industry Code
B. Monsanto employing the former CEO of Greenpeace Australia as a consultant
C. Changing the name of a company from 'British Petroleum' to 'Beyond Petroleum'
D. All of the given options are correct.
8. Empirical findings consistent with Legitimacy Theory would be increased disclosure of:
A. Environmental good news, immediately following prosecutions for breaches of environmental standards
B. Environmental bad news, immediately following prosecutions for breaches of environmental standards
C. Environmental good news, immediately preceding prosecutions for breaches of environmental standards
D. Environmental bad news, immediately preceding prosecutions for breaches of environmental standards
9. According to Legitimacy Theory, the annual report is:

A. A means to assist users in legitimately allocating scarce resources
B. A tool to legitimise the ongoing operations of the organisation
C. A legitimate account of the activities of the organisation for the period
10. The difference between Positive Accounting Theory and Legitimacy Theory is that:
A. Legitimacy Theory does not rely on the assumption that all action is driven by individual self-interest.
B. Legitimacy Theory makes no assumptions about the efficiency of markets.
C. Legitimacy Theory suggests that organisations have a 'social contract' with society.
11. Which of the following statements is characteristic of Stakeholder Theory?

A. Stakeholder Theory has both a normative and positive perspective.
B. Stakeholder Theory has neither a normative nor positive perspective.
C. Stakeholder Theory is a normative theory.
D. Stakeholder Theory is a positive theory.
12. The moral perspective of Stakeholder Theory holds that all stakeholders have the right to be treated fairly by
an organisation:
A. Provided this improves the organisation's financial performance
B. Regardless of the impact on the organisation's financial performance
C. Because, in the long run, this will improve the organisation's financial performance
13. The difference between the managerial and moral perspectives of Stakeholder Theory is that:
A. The moral perspective is empirically testable
B. The moral perspective is more 'organisation-centred'
C. The managerial perspective is empirically testable
D. The managerial perspective holds that all stakeholders have certain minimum rights that must not be violated
14. Managerial Stakeholder Theory suggests that annual reports will be used to:
A. Gain the support of powerful stakeholders
B. Report on the activities of management with respect to each stakeholder
C. Explain why profits may have been sacrificed in order to respect the minimum rights of some stakeholders
15. Institutional Theory suggests which of the following?

A. While organisational structures are initially varied, they are gradually homogenised by competition, the state
and professions.
B. While organisational structures are initially homogenous, they are gradually varied by competition, the State
and professions.
C. The organisational structure is determined by institutional factors such as management style and
organisational culture.
D. The organisational structure is determined by the organisation's most powerful stakeholders.
16. Which statement describes the relationship between Institutional Theory (IT), Legitimacy Theory (LT) and
Stakeholder Theory (ST)?
A. IT is a normative theory while LT and ST are positive theories.
B. IT is a more detailed version of LT, and is broadly consistent with ST.
C. The mechanisms IT suggests firms will use to align the perceptions of their performance with society's
values could include the mechanisms suggested by LT and ST.
D. The mechanisms IT suggests firms will use to align the perceptions of their performance with society's are
different from the mechanisms suggested by LT and ST.
17. Which of the following is false?

A. Isomorphism refers to the adaptation of an institutional practice by an organisation.
B. Normative isomorphism refers to when organisations adopt particular institutional practices.
C. Coercive isomorphism refers to when organisations change their practices due to stakeholder pressure.
D. Mimetic isomorphism refers to when organisations copy the institutional practices of other organisations for
competitive advantage practices.
18. An organisation disclosing social and environmental information because a competitor was gaining a
competitive advantage by doing so, is an example of:
A. Mimetic isomorphism
B. Coercive isomorphism
C. Normative isomorphism
19. An organisation disclosing social and environmental information in response to societal expectations is an
example of:
20. An organisation disclosing social and environmental information in response to shareholder demands is an
example of:
21. Which of the following statement is false?

A. Legitimacy Theory, Stakeholder Theory and Institutional Theory are all examples of 'systems-oriented
theories'.
B. A systems-oriented view of the organisation and society focuses on the role of information and disclosure in
the relationship between organisations, the State, individuals and groups.
C. Within a systems-based perspective, the entity is assumed to be influenced by, and in turn to have an
influence on, the society in which it operates.
D. Within Legitimacy Theory, Stakeholder Theory and Institutional Theory, accounting disclosure policies are
not considered to constitute a strategy to influence the organisation's relationships with the other parties with
which it interacts.
22. According to Lindblom (1994), which of the following strategies can an organisation adopt when it
perceives that its legitimacy is in question because its actions or operations are at variance with society's
expectations and values?
A. Seek to educate and inform its 'relevant public' about actual changes in the organisation's performance and
activities.
B. Seek to change the perceptions that 'relevant public' have of the organisation's performance and activities.
C. Seek to manipulate perception by deflecting attention from the issue of concern onto other issues to
demonstrate how the organisation has fulfilled social expectations.
23. Based on a joint consideration of Media Agenda Setting Theory and Legitimacy Theory, which of the
following statements is correct?
A. According to Legitimacy Theory management uses the annual report as a tool to legitimise the ongoing
operations of the organisation, and according to Media Agenda Setting Theory the media are able to influence
community perceptions about issues such as the environment.
B. Community concerns about the environmental performance of a specific firm in an industry will also impact
on the disclosure strategies of firms across that industry.
C. We should find a relationship between the extent of disclosure of social and environmental issues within the
annual report and the media attention given to those issues.
24. Which of the following hypotheses, proposed by DiMaggio and Powell (1983), do not relate to coercive or
mimetic isomorphism?
A. The greater the dependence of an organisation on another organisation, the more similar it will become to
that organisation in structure, climate and behavioural focus.
B. The greater the centralisation of organisation A's resource supply, the greater the extent to which organisation
A will change isomorphically to resemble the organisations on which it depends for resources.
C. The greater the reliance on academic credentials in choosing managerial and staff personnel, the greater the
extent to which an organisation will become like other organisations in its field.
D. The more ambiguous the goals of an organisation, the greater the extent to which the organisation will model
itself after organisations that it perceives to be successful.
25. Which of the following is not true about Political Economy Theory?
A. The perspective embraced is that society, politics and economics are separable, and economic issues can be
meaningfully investigated in the absence of considerations about the political, social and institutional
framework in which the economic activity takes place.
B. By considering the political economy, a researcher is able to consider broader (societal) issues that impact on
how an organisation operates and what information it elects to disclose.
C. Political Economy Theory has been divided into two broad streams: 'classical' and 'bourgeois'.
D. The political economy perspective perceives accounting reports as social, political and economic documents.
26. Which of the following is true about substantive management techniques of legitimation?
A. It does not actually reflect any real change in activities.
B. Corporate behaviour is portrayed in a manner to 'appear consistent with social values and expectations'.
C. It involves real, material change in organisational goals, structures, and processes or socially institutionalized
practices.
D. Companies may publish policies on various issues including the environment but not enforce or set in place
mechanisms for the full adoption of such policies.
27. Legitimacy Theory cannot be applied to:

A. Financial disclosure practices
B. Social disclosure practices
C. Environmental disclosure practices
28. Which of the following is true about Stakeholder Theory?

A. Stakeholder Theory can help managers in solving ethical problems, such as the environment, and gives
managers a practical framework for assessing and balancing interests as long as normative principles are the
foundation upon which decisions are made.
B. Normative principles are incorporated into organisational decision making, and it allows managers to give an
unbalanced or biased weighting of issues in order to preserve ethical integrity.
C. Assessing stakeholders is often based on descriptive, not normative, assumptions.
29. The rate of institutional isomorphism is increased when firms:

A. Are highly dependent on the institutional environment
B. Exist under high uncertainty or ambiguous goals
C. Rely extensively on professionals

considerations of systems-oriented theories Key
1. In relation to Political Economy Theory, which of the following statements is false?

A. Political Economy Theory views society, politics and economics as inseparable.
B. Political Economy Theory is derived from Positive Accounting Theory.
C. Legitimacy Theory and Stakeholder Theory are derived from Political Economy Theory.
D. Political Economy Theory can be divided into 'classical' and 'bourgeois' political economy. theories
Deegan - Chapter 08 #1
Difficulty: Easy
2. The difference between 'classical' and 'bourgeois' political economy theory is that:
A. 'Classical' political economy theory explicitly considers class conflict and the role of the state in its analysis,
while 'bourgeois' political economy theory does not.
B. 'Bourgeois' political economy theory explicitly considers class conflict and the role of the state in its analysis,
while 'classical' political economy theory does not.
C. 'Classical' political economy theory is a normative theory, whereas bourgeois' political economy theory is a
positive theory.
D. 'Bourgeois' political economy theory is a normative theory, whereas 'classical' political economy theory is a
positive theory.
Difficulty: Medium
3. Which of the following statements is false?

A. Legitimacy Theory is derived from 'classical' political economy theory.
B. Legitimacy Theory suggests that organisations will act in a way that society perceives as legitimate.
C. Legitimacy Theory relies upon the notion of the 'social contract'.
D. Legitimacy Theory asserts that organisations will attempt to ensure that society perceives their actions as
'legitimate'.
Difficulty: Easy
4. The idea of the 'social contract' is that corporations only exist because they benefit:
A. Shareholders
B. Governments
C. Managers
D. Society
Difficulty: Easy
5. The 'legitimacy gap' of a corporation will narrow when:

A. A corporation discloses good news about its behaviour but its actual behaviour declines.
B. A corporation discloses bad news about its behaviour but its actual behaviour improves.
C. Societal expectations of appropriate corporate behaviour increase.
Difficulty: Medium
6. Which of the following is not a means by which an organisation may attempt to legitimise its activities?
A. Adapting its output, goals and methods of operation to conform to prevailing definitions of legitimacy.
B. Attempting, through communication, to alter the definition of social legitimacy so that it conforms to the
organisation's present practices, outputs and values.
C. Asserting its right to operate under the existing regulatory framework that has been determined by society.
D. Attempting, through communication, to become identified with symbols, values or institutions that have a
strong base of legitimacy.
Difficulty: Medium
7. An example of a legitimising symbol would be:

A. The World Wide Fund for Nature assessing compliance with the Australian Minerals Industry Code
B. Monsanto employing the former CEO of Greenpeace Australia as a consultant
C. Changing the name of a company from 'British Petroleum' to 'Beyond Petroleum'
Difficulty: Medium
8. Empirical findings consistent with Legitimacy Theory would be increased disclosure of:
A. Environmental good news, immediately following prosecutions for breaches of environmental standards
B. Environmental bad news, immediately following prosecutions for breaches of environmental standards
C. Environmental good news, immediately preceding prosecutions for breaches of environmental standards
D. Environmental bad news, immediately preceding prosecutions for breaches of environmental standards
Difficulty: Medium
9. According to Legitimacy Theory, the annual report is:

A. A means to assist users in legitimately allocating scarce resources
B. A tool to legitimise the ongoing operations of the organisation
C. A legitimate account of the activities of the organisation for the period
Difficulty: Easy
10. The difference between Positive Accounting Theory and Legitimacy Theory is that:
A. Legitimacy Theory does not rely on the assumption that all action is driven by individual self-interest.
B. Legitimacy Theory makes no assumptions about the efficiency of markets.
C. Legitimacy Theory suggests that organisations have a 'social contract' with society.

Difficulty: Easy
11. Which of the following statements is characteristic of Stakeholder Theory?

A. Stakeholder Theory has both a normative and positive perspective.
B. Stakeholder Theory has neither a normative nor positive perspective.
C. Stakeholder Theory is a normative theory.
D. Stakeholder Theory is a positive theory.

Difficulty: Easy
12. The moral perspective of Stakeholder Theory holds that all stakeholders have the right to be treated fairly by
an organisation:
A. Provided this improves the organisation's financial performance
B. Regardless of the impact on the organisation's financial performance
C. Because, in the long run, this will improve the organisation's financial performance

Difficulty: Medium
13. The difference between the managerial and moral perspectives of Stakeholder Theory is that:
A. The moral perspective is empirically testable
B. The moral perspective is more 'organisation-centred'
C. The managerial perspective is empirically testable
D. The managerial perspective holds that all stakeholders have certain minimum rights that must not be violated

Difficulty: Easy
14. Managerial Stakeholder Theory suggests that annual reports will be used to:
A. Gain the support of powerful stakeholders
B. Report on the activities of management with respect to each stakeholder
C. Explain why profits may have been sacrificed in order to respect the minimum rights of some stakeholders

Difficulty: Easy
15. Institutional Theory suggests which of the following?

A. While organisational structures are initially varied, they are gradually homogenised by competition, the state
and professions.
B. While organisational structures are initially homogenous, they are gradually varied by competition, the State
and professions.
C. The organisational structure is determined by institutional factors such as management style and
organisational culture.
D. The organisational structure is determined by the organisation's most powerful stakeholders.

Difficulty: Medium
16. Which statement describes the relationship between Institutional Theory (IT), Legitimacy Theory (LT) and
Stakeholder Theory (ST)?
A. IT is a normative theory while LT and ST are positive theories.
B. IT is a more detailed version of LT, and is broadly consistent with ST.
C. The mechanisms IT suggests firms will use to align the perceptions of their performance with society's
values could include the mechanisms suggested by LT and ST.
D. The mechanisms IT suggests firms will use to align the perceptions of their performance with society's are
different from the mechanisms suggested by LT and ST.

Difficulty: Hard
17. Which of the following is false?

A. Isomorphism refers to the adaptation of an institutional practice by an organisation.
B. Normative isomorphism refers to when organisations adopt particular institutional practices.
C. Coercive isomorphism refers to when organisations change their practices due to stakeholder pressure.
D. Mimetic isomorphism refers to when organisations copy the institutional practices of other organisations for
competitive advantage practices.

Difficulty: Easy
18. An organisation disclosing social and environmental information because a competitor was gaining a
competitive advantage by doing so, is an example of:

Difficulty: Easy
19. An organisation disclosing social and environmental information in response to societal expectations is an
example of:

Difficulty: Easy
20. An organisation disclosing social and environmental information in response to shareholder demands is an
example of:

Difficulty: Easy
21. Which of the following statement is false?

A. Legitimacy Theory, Stakeholder Theory and Institutional Theory are all examples of 'systems-oriented
theories'.
B. A systems-oriented view of the organisation and society focuses on the role of information and disclosure in
the relationship between organisations, the State, individuals and groups.
C. Within a systems-based perspective, the entity is assumed to be influenced by, and in turn to have an
influence on, the society in which it operates.
D. Within Legitimacy Theory, Stakeholder Theory and Institutional Theory, accounting disclosure policies are
not considered to constitute a strategy to influence the organisation's relationships with the other parties with
which it interacts.

Difficulty: Medium
22. According to Lindblom (1994), which of the following strategies can an organisation adopt when it
perceives that its legitimacy is in question because its actions or operations are at variance with society's
expectations and values?
A. Seek to educate and inform its 'relevant public' about actual changes in the organisation's performance and
activities.
B. Seek to change the perceptions that 'relevant public' have of the organisation's performance and activities.
C. Seek to manipulate perception by deflecting attention from the issue of concern onto other issues to
demonstrate how the organisation has fulfilled social expectations.

Difficulty: Easy
23. Based on a joint consideration of Media Agenda Setting Theory and Legitimacy Theory, which of the
following statements is correct?
A. According to Legitimacy Theory management uses the annual report as a tool to legitimise the ongoing
operations of the organisation, and according to Media Agenda Setting Theory the media are able to influence
community perceptions about issues such as the environment.
B. Community concerns about the environmental performance of a specific firm in an industry will also impact
on the disclosure strategies of firms across that industry.
C. We should find a relationship between the extent of disclosure of social and environmental issues within the
annual report and the media attention given to those issues.

Difficulty: Medium
24. Which of the following hypotheses, proposed by DiMaggio and Powell (1983), do not relate to coercive or
mimetic isomorphism?
A. The greater the dependence of an organisation on another organisation, the more similar it will become to
that organisation in structure, climate and behavioural focus.
B. The greater the centralisation of organisation A's resource supply, the greater the extent to which organisation
A will change isomorphically to resemble the organisations on which it depends for resources.
C. The greater the reliance on academic credentials in choosing managerial and staff personnel, the greater the
extent to which an organisation will become like other organisations in its field.
D. The more ambiguous the goals of an organisation, the greater the extent to which the organisation will model
itself after organisations that it perceives to be successful.

Difficulty: Hard
25. Which of the following is not true about Political Economy Theory?
A. The perspective embraced is that society, politics and economics are separable, and economic issues can be
meaningfully investigated in the absence of considerations about the political, social and institutional
framework in which the economic activity takes place.
B. By considering the political economy, a researcher is able to consider broader (societal) issues that impact on
how an organisation operates and what information it elects to disclose.
C. Political Economy Theory has been divided into two broad streams: 'classical' and 'bourgeois'.
D. The political economy perspective perceives accounting reports as social, political and economic documents.

Difficulty: Easy
26. Which of the following is true about substantive management techniques of legitimation?
A. It does not actually reflect any real change in activities.
B. Corporate behaviour is portrayed in a manner to 'appear consistent with social values and expectations'.
C. It involves real, material change in organisational goals, structures, and processes or socially institutionalized
practices.
D. Companies may publish policies on various issues including the environment but not enforce or set in place
mechanisms for the full adoption of such policies.

Difficulty: Medium
27. Legitimacy Theory cannot be applied to:

A. Financial disclosure practices
B. Social disclosure practices
C. Environmental disclosure practices

Difficulty: Easy
28. Which of the following is true about Stakeholder Theory?

A. Stakeholder Theory can help managers in solving ethical problems, such as the environment, and gives
managers a practical framework for assessing and balancing interests as long as normative principles are the
foundation upon which decisions are made.
B. Normative principles are incorporated into organisational decision making, and it allows managers to give an
unbalanced or biased weighting of issues in order to preserve ethical integrity.
C. Assessing stakeholders is often based on descriptive, not normative, assumptions.

Difficulty: Hard
29. The rate of institutional isomorphism is increased when firms:

A. Are highly dependent on the institutional environment
B. Exist under high uncertainty or ambiguous goals
C. Rely extensively on professionals

Difficulty: Medium

considerations of systems-oriented theories Summary
Category
# of Questions
Deegan - Chapter 08
29
Difficulty: Easy
15
Difficulty: Hard
3
Difficulty: Medium
11

Chapter 08 Unregulated Corp

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Chapter 08 Unregulated corporate reporting decisions:

considerations of systems-oriented theories

3. Which of the following statements is false?

5. The 'legitimacy gap' of a corporation will narrow when:

7. An example of a legitimising symbol would be:

9. According to Legitimacy Theory, the annual report is:

11. Which of the following statements is characteristic of Stakeholder Theory?

15. Institutional Theory suggests which of the following?

17. Which of the following is false?

21. Which of the following statement is false?

27. Legitimacy Theory cannot be applied to:

28. Which of the following is true about Stakeholder Theory?

29. The rate of institutional isomorphism is increased when firms: