Sub-sector

Each sub-sector has its own specific characteristics (Gao et al. 2005). In response to the characteristics and pressures which are inherent to the sub-sectors in which an organisation operates, the latter adopts specific behaviours (Patten 1991; Loh 2014); including disclosure practices (Courtis 1979; McNally et al. 1982; Cooke 1992; Fekrat et al. 1996). Organisations which operate in the same sub-sector engage in similar extents of disclosures, to minimise any potential of attracting stakeholders' attention and scrutiny to their operations (Lopes and Rodrigues 2007). The sub- sector in which an organisation operates influences its disclosure practices due to two factors: the disclosure requirements and exemptions of the sub-sector, and the extent of media coverage of the sub-sector, as elaborated hereunder.

5.3.2.1 Disclosure requirements and exemptions of NFP sub- sectors

In Australia, each sub-sector has its own specific disclosure requirements and exemptions, in addition to the reporting obligations which apply to all organisations (Wallace et al. 1994; Botosan 1997; Inchausti 1997; Nagar et al. 2003; Debreceny and Rahman 2005; Bozzolan et al. 2006; Chia et al. 2011). For example, Australian NFPs which are registered as charities and which also carry activities in the religion sub-sector, are exempted from lodging their financial statements with the ACNC (ACNC 2014c).

Further, in Australia, some NFP sub-sectors are overseen by industry associations; and the latter establish disclosure guidelines for their respective sub-sector (ICAA 2006; Chia et al. 2011). One such NFP industry association, which sets disclosure requirements for its sub-sector, is the Australian Council for International Development (ACFID). ACFID is an organisation which provides guidance and leadership to its members, that is, to NFPs which contribute to the Australian development and aid sector; and ACFID members are required to conform to the ACFID code of conduct, when preparing and publishing their financial statements (ACFID 2014a)41. In other words, the ACFID code of conduct represents an additional set of financial disclosure requirements which apply to Australian NFPs that operate in sub-sectors which are related to aid and development (ACFID 2014b).

Previous studies have drawn mixed conclusions in relation to the influence of the sub-sector in which an organisation operates and its extent of disclosures (Galan et al. 2011): some studies have identified a significant relationship between the sub- sector of an organisation and its extent of disclosures (Cho and Patten 2007; Lopes and Rodrigues 2007; Aljifri 2008; Holder-Webb et al. 2009; Aly et al. 2010; Mutawaa and Hewaidy 2010; Kimbro and Melendy 2010; Casey et al. 2011; Faisal et al. 2011; Galan et al. 2011; Russel 2011; Zeng et al. 2012; Deng et al. 2015), including extent of financial disclosures (Christensen and Mohr 2003; Oyelere et al. 2003); whilst others identified no relationship between the sub-sector in which an

41 _{See Note D.1 in Appendix D for an overview of the financial disclosure requirements set by the} ACFID code of conduct.

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organisation operates and its extent of disclosures (Akhtaruddin 2005; Owusu-Ansah and Yeoh 2005; Alsaeed 2006; Aljifri and Hussainey 2007; Elzahar and Hussainey 2012).

On the other hand, the NFP literature remains underdeveloped, with two studies: (Christensen and Mohr 2003) and Whittaker (2013) having explored the influence of the sub-sector of a NFP on its disclosures practices. The study by Christensen and Mohr (2003) has examined the disclosure practices of NFPs operating in the USA; whilst the work done by Whittaker (2013) explored annual report (including financial) disclosures made by Canadian NFPs. The Australian NFP literature, on the relationship between the sub-sector in which a NFP operates and the disclosures made by the NFP, remains unaddressed.

The studies by Christensen and Mohr (2003) and Whittaker (2013) have observed a significant relationship between the sub-sector in which a NFP operates and the disclosures made by the organisation. Following these two studies, it is next hypothesised:

H11: The sub-sector, in which a NFP operates, influences its extent of accounting disclosures.

5.3.2.2 Media Coverage of sub-sectors

Following some recent fund misappropriation scandals in the NFP sector42, media coverage is a pertinent variable, when considering the extent of accounting disclosures made in the annual reports of NFPs.

The media coverage of a sub-sector has an important role in shaping the perceptions and expectations which different stakeholders have, in relation to the sub-sector (McCombs and Shaw 1972; Mayer 1980; Smith 1987; Brosius and Kepplinger 1990; Fombrun and Shanley 1990; Ader 1993; Rao 1994; Fombrun 1996; Zuckerman 1999; Deephouse 2000; Pollock and Rindova 2003; Golan 2006; Pollock at al. 2008; Deephouse and Heugens 2009; Pfaffer et al. 2010; Borchers 2013; Zavyalova et al.

42 _{For instance, World Vision, Salvation Army and Shane Warne Foundation NFPs making news} headlines in 2016.

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2014). In general, media plays an informative role among different stakeholder groups (Dutton and Dukerich 1991; Rao 1994;Deephouse 2000; Dyck and Zingales 2002; Stromberg 2002; Dyck and Zingales 2002; Stromberg 2002; Djankov et al. 2003; Einwiller et al. 2010); and the extent of media coverage of an issue, directly increases the extent to which stakeholders consider the issue to be salient (McCombs and Shaw 1972; Deephouse 2000; Deegan et al. 2002). Similarly, as the media coverage of a sub-sector augments, stakeholders' concerns and scrutiny of organisations operating in that sub-sector go up (McCombs and Shaw 1972; Funkhouser 1973; Neuman 1990; Patten 1992; Ader 1995; Deegan and Rankin 1996; Brown and Deegan 1998; Hooghiemstra 2000; Cormier et al. 2011).

Media coverage of a sub-sector has different consequences: it influences stakeholders' level of concerns about the sub-sector (Ader 1995), it affects stakeholders' perceptions about the legitimacy of, both, the sub-sector and the organisations operating within this particular sub-sector (Fombrun and Shanley 1990; Rao 1994; Fombrun 1996; Zuckerman 1999; Pollock and Rindova 2003; Deephouse and Carter 2005; Miller 2006; Kennedy 2008; Pollock et al. 2008; Deephouse and Heugens 2009; Pfaffer et al. 2010; Zavyalova et al. 2014); and it eventually has an effect on whether stakeholders maintain or withdraw their support to organisations operating in that sub-sector (Suchman 1995; Zuckerman 1999; Pollock and Rindova 2003; Kennedy 2008; Pollock et al. 2008; Jonsson et al. 2009; Desai 2011; Zavyalova et al. 2014). In response to these different consequences of media coverage, organisations react by adopting practices which contribute to reinstate any lost legitimacy (Scott and Lyman 1968; Meyer and Rowan 1977; Ashforth and Gibbs 1990; Elsbach, 1994; Suchman 1995; O'Donovan 1997; Frost and Seamer 2002; Deegan et al. 2002; Lodhia 2005; Cho and Patten 2007; Islam 2009; Deegan and Islam 2014); and they do so by using accounting disclosures, to legitimise their operations (Patten 1991; Milne 2002; Hartono et al. 2013), to shift stakeholders' perceptions of their activities (Brown and Deegan 1998; O'Donovan 1999; Deegan et al. 2002) and, also, to minimise any additional scrutiny from different stakeholder groups (McGregor-Lowndes et al. 2014).

Prior studies have made three observations on the influence of the media coverage of a sub-sector on the extent of disclosures made by organisations operating within that sub-sector. First, media coverage of a sub-sector has a direct influence on the extent of disclosures made by its constituents (Neu et al. 1998; van Nimwegen et al. 2008; Islam and Deegan 2010). Second, negative media coverage of a sub-sector has a greater influence on stakeholders' perceptions of the operations of the sub-sector, than positive media coverage (Deegan et al. 2002; Barnett and King 2008; Yu et al. 2008; Jonsson et al. 2009).

This study adopts the definition of negative media coverage as media information which indicates that the practices of an organisation do not align with the expectations of different stakeholder groups and of society, at large (Deegan et al. 2002; Islam 2009; Islam and Deegan 2010). Extant literature has also noted that any negative media coverage which targets a particular organisation within a sub-sector, has a spill-over effect, that is, ends up attracting stakeholders' attention to the activities of other organisations operating within that sub-sector (Patten 1992; Deegan and Rankin 1996; Reger and Palmer 1996; Brown and Deegan 1998; Kostova and Zaheer 1999; Deegan et al. 2000; Fiss and Zajac 2006; Barnett and Hoffman 2008; Barnett and King 2008; Islam 2009; Islam and Deegan 2010; Kang 2008; Lange et al. 2011; Zavyalova et al. 2014); and organisations facing negative spill-over effects, use their disclosures, including accounting disclosures, to signal the legitimacy of their operations (O'Donovan 1999; Deegan et al. 2002; Lodhia et al. 2012). Third, media coverage does not influence the extent of disclosures made by an organisation in the same period that the media coverage took place, that is, there is a lagged effect between media coverage and the change in extent of disclosures made by an organisation (Brown and Deegan 1998). Media coverage of a sub-sector precedes the change in stakeholders' perception about the activities and legitimacy of the sub-sector (McCombs and Shaw 1973; Frunkhouser 1973; Neuman 1990; Trumbo 1995); and the change in the disclosure practice of the organisations operating within the sub-sector (Griffith 1994; Islam and Deegan 2010).

Even though, NFP-related fund misappropriation scandals have been making news headlines (as earlier described), NFP literature on the influence of media attention on the disclosure practices is still at its preliminary stage. Extant NFP literature has

examined the usage of media reporting by Australian Red Cross blood service (Guthrie et al. 2009), considered the extent of disclosure made by Australian NFPs and how the extent of expenditure disclosures of an Australian NFP can potentially attract media attention (Ryan and Irvine 2012) and also, acknowledged that NFPs used media to conduct impression management during the financial crisis (Khanna and Irvine 2012). However, so far, there has been no study which has explored the relationship between the extent of media attention received by a NFP and the disclosure practices adopted by the organisation.

Considering the three observations made by general extant studies and described in the earlier paragraphs, it is next hypothesised that:

H12: The greater the extent of negative media attention of a sub-sector, in the prior period, the greater the extent of accounting disclosures made by NFPs operating in that sub-sector, in the current period.