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ROLE OF FINANCIAL MANAGEMENT IN THE IMPROVEMENT OF LOCAL GOVERNMENT PERFORMANCE
Corresponding Author(s) : Indrawati Yuhertiana
Humanities & Social Sciences Reviews,
Vol. 7 No. 1 (2019): January
Abstract
Purpose of Study: This study aimed to analyse the influence of the financial management of local government on its performance related to internal control and the competence of the apparatus.
Methodology: The study population includes all local government managers in 38 cities of East Java provinces and out of 1067 units of local government (offices) only samples of 81 local government offices are used in this study for analysis. Partial Least Squares and t.test were used to test the hypotheses.
Results: It has been found that the competence of personnel directly affect the performance of local governments’ public services, but has no effect indirectly through local financial management, while internal controls affect the performance of local governments’ public services, either directly or indirectly through local financial management.
Keywords
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- Afiah, N.N., 2005. The influence of the competence of DPRD members and regional government apparatuses on the implementation of accounting, budgeting and quality information on financial information systems on the principles of good local governance. unpublished dissertation. Universitas Padjadjaran Bandung.
- Albasu, J. and J. Nyameh, 2017. Relevance of stakeholders theory, organizational identity theory and social exchange theory to corporate social responsibility and employees performance in the commercial banks in Nigeria. International Journal of Business, Economics and Management, 4(5): 95-105. DOI: https://doi.org/10.18488/journal.62.2017.45.95.105
- Anigbogu, U.E. and E.K. Nduka, 2014. Stock market performance and economic growth: Evidence from Nigeria employing vector error correction model framework. The Economics and Finance Letters, 1(9): 90-103. DOI: https://doi.org/10.18488/journal.29/2014.1.9/29.4.90.103
- Anthony, R.N., Govindarajan, 2003. Management control system. New York . McGraw Hill Publishing Company Limited.
- Anyanwu, J.O., L.I. Okoroji, O.F. Ezewoko and C.A. Nwaobilor, 2016. The impact of training and development on workers performance in Imo State. Global Journal of Social Sciences Studies, 2(2): 51-71.
- Awio, G. and D. Northcott, 2001. Decentralization and budgeting: The uganda health sector experience. International Journal of Public Sector Management, 14(1): 75-88. DOI: https://doi.org/10.1108/09513550110387093
- Beckett-Camarata, J., 2003. An examination of the relationship between the municipal strategic plan and the capital budget and its effect of financial performance. Journal of Public Budgeting, Accounting & Financial Management, 15(1): 23. DOI: https://doi.org/10.1108/JPBAFM-15-01-2003-B002
- Boynton, W.C. and J.N. Raymond, 2006. Modern auditing. United States. JohnWiley and Son, Inc.
- Case, F.E., 1951. The budget as a measure of the federal urban housing programs. The Journal of Finance, 6(4): 429-439. DOI: https://doi.org/10.1111/j.1540-6261.1951.tb04484.x
- Chang, W.S. and C. Liang, 2015. Exploring potential entrants’ perceptions of the performance of an agrirural social enterprise in Taiwan. International Journal of Management and Sustainability, 4(10): 205-217. DOI: https://doi.org/10.18488/journal.11/2015.4.10/11.10.205.217
- Chielotam, A.N., 2015. Oguamalam masquerade performance beyond aesthetics. Humanities and Social Sciences Letters, 3(2): 63-71. DOI: https://doi.org/10.18488/journal.73/2015.3.2/73.2.63.71
- Donaldson, L., 2001. The contingency theory of organizations. California. Sage. DOI: https://doi.org/10.4135/9781452229249
- Dwianasari, R., 2004. The effect of the relationship between budgetary participation and decentralization structure on managerial performance of local government agencies: The role of organizational commitment as intervening variable. Sosiosains no. 17 (2004).
- Freeman, R.J., C.D. Shoulders, G.S. Allison, G.R. Smith Jr and C.J. Becker, 2014. Governmental and nonprofit accounting: Theory and practice. JPAEJOURNAL OF PUBLIC AFFAIRS EDUCATION VOLUME 20 NUMBER 3: 441. DOI: https://doi.org/10.1080/15236803.2014.12001798
- Herminingsih, 2009. Effect of participation in budgeting and managerial roles of regional financial managers on local government performance (empirical studies in the district government demak), thesis, Universitas Diponegoro Semarang.
- Hogye, M., 2002. Theoretical approaches to public budgeting. Local Government Budgeting, Budapest: Open Society Institute.
- Hussain, H.I., I.S.Z. Abidin, R. Kamarulzaman and F.A. Shawtari, 2018. The impact of state affiliated directors on the capital structure speed of adjustment in an emerging market. Polish Journal of Management Studies, 18(1): 133-148. DOI: https://doi.org/10.17512/pjms.2018.18.1.11
- Indra, B., 2006. Akuntansi Sektor Publik. Jakarta. Salemba Empat.
- Jones Osasuyi, O. and G. Mwakipsile, 2017. Working capital management and managerial performance in some selected manufacturing firms in Edo State Nigeria. Journal of Accounting, Business and Finance Research, 1(1): 46-55. DOI: https://doi.org/10.20448/2002.11.46.55
- Kimsean, Y., Y.T. Keban and A. Subarsono, 2004. Analisis kinerja pelayanan publik pada unit pelayanan terpadu satu atap kota yogyakarta= analysis of performance of public service at unit of one roof integrated services in yogyakarta city. Sosiosains, 17(2004).
- Kucukkocaoglu, G. and M.A. Bozkurt, 2018. Identifying the effects of mergers and acquisitions on Turkish banks performances. Asian Economic and Financial Review, 6(3): 235-244. DOI: https://doi.org/10.18488/journal.8.2018.63.235.244
- Le, H.L., K.T. Vu, N.K. Du and M.D. Tran, 2018. Impact of working capital management on financial performance: The case of Vietnam. International Journal of Applied Economics, Finance and Accounting, 3(1): 15-20. DOI: https://doi.org/10.33094/8.2017.2018.31.15.20
- Lupia, A. and D.M. Mathew, 2000. Representation or abdication? How citizens use institutions to help delegation succeed. European Journal of Political Research, 37(3): 291-307. DOI: https://doi.org/10.1111/1475-6765.00514
- Malarvizhi, C.A., R. Nahar and S.R. Manzoor, 2018. The strategic performance of Bangladeshi private commercial banks on post implementation relationship marketing. International Journal of Emerging Trends in Social Sciences, 2(1): 28-33. DOI: https://doi.org/10.20448/2001.21.28.33
- Maldonado-Guzman, G., J. Marin-Aguilar and M. Garcia-Vidales, 2018. Innovation and performance in Latin-American small family firms. Asian Economic and Financial Review, 8(7): 1008-1020. DOI: https://doi.org/10.18488/journal.aefr.2018.87.986.998
- Maroofi, F., A.G. Ardalan and J. Tabarzadi, 2017. The effect of sales strategies in the financial performance of insurance companies. International Journal of Asian Social Science, 7(2): 150-160. DOI: https://doi.org/10.18488/journal.1/2017.7.2/1.2.150.160
- Miah, N. and L. Mia, 1996. Decentralization, accounting controls and performance of government organizations: A new zealand empirical study. Financial Accountability & Management, 12(3): 173-190. DOI: https://doi.org/10.1111/j.1468-0408.1996.tb00186.x
- Mosbah, A., S.R. Serief and K.A. Wahab, 2017. Performance of family business in Malaysia. International Journal of Social Sciences Perspectives, 1(1): 20-26. DOI: https://doi.org/10.33094/7.2017.11.20.26
- Mowlaei, M., 2017. The impact of AFT on export performance of selected Asian developing countries. Asian Development Policy Review, 5(4): 253-261. DOI: https://doi.org/10.18488/journal.107.2017.54.253.261
- Ott, K. and B. Anto, 2001. Local government budgeting in croatia. Zagreb, Croatia. Institute of Public Finance.
- Pamungkas, B., 2005. The influence of the quality of legislative regulations, the application of public sector financial accounting and the application of supervision to the quality of government financial reports and performance accountability of government agencies (surveys of district and city governments in the Yogyakarta Special Region). Doctoral Desertation at Padjadjaran University, Bandung.
- Premchand, A., 1993. Public expenditure management. Washington DC. International Monetary Fund.
- Priono, H., 2011. Factors affecting regional financial management and its implications for Local government public service performance in East Java, accounting. Malang: Brawidjaya University.
- Priono, H., 2011. Faktor-faktor yang mempengaruhi pengelolaan keuangan daerah dan implikasinya terhadap kinerja pelayanan publik pemerintah daerah di jawa timur. In: Accounting. Universitas Brawidjaya, Malang.
- Purnama, C., 2014. Improved performance through empowerment of small industry. Journal of Social Economics Research, 1(4): 72-86.
- Rahma, R., Yuhertiana, I., & Sundari, S. 2016. The use of E-audit in increasing government audit finding. Journal of Theoretical and Applied Information Technology, 93(2), 449–460.
- Santhi, N.S. and K.B. Gurunathan, 2014. Fama-French three factors model in Indian mutual fund market. Asian Journal of Economics and Empirical Research, 1(1): 1-5.
- Sedarmayanti.,2004. Good Governance.Bandung:CV Mandar Maju
- Setiaji, W. and Priyo Hari Adi, 2007. Faculty of Economics, Satya Wacana Christian University Regional Financial Capability Map After Regional Autonomy: Is Experiencing Shift. National Accounting Symposium X. Makassar.
- Shelton, M.W. and A. Troy, 2000. Financial performance monitoring and customer-oriented government: A case study. Journal of Public Budgeting, Accounting & Financial Management, 12(1): 87.
- Shields, J.F. and D.S. Michael, 1998. Antecedents of participative budgeting. Accounting, Organizations and Society, 23(1): 49-76. DOI: https://doi.org/10.1016/S0361-3682(97)00014-7
- Siegel, G. and H. Ramanauskas-Marconi, 1989. Behavioral accounting. South-Western Publishing Company.
- Tuasikal, A., 2007. Pengaruh pengawasan, pemahaman sistem akuntansi keuangan dan pengelolaan keuangan terhadap kinerja unit satuan kerja perangkat daerah pada kabupaten dan kota di propinsi maluku. Jurnal Keuangan dan Perbankan, 10(1): 66-87.
- Walker, R.M. and G.A. Boyne, 2006. Public management reform and organizational performance: An empirical assessment of the uk labour government's public service improvement strategy. Journal of Policy Analysis and Management, 25(2): 371-393. DOI: https://doi.org/10.1002/pam.20177
- Welsch, G.A., 1976. Budgeting: Profit planning and control. London. Prentice Hall.
- Yuhertiana, I., 2003. Principal-agent theory dalam proses perencanaan anggaran sektor publik. KOMPAK: Jurnal Akuntansi, Manajemen, dan Sistem Informasi. Yogyakarta: FE UTY(9): 403-422.
- Yuhertiana, I., S. Pranoto and H. Priono, 2016. Perilaku disfungsional pada siklus penganggaran pemerintah: Tahap perencanaan anggaran. Jurnal Akuntansi dan Auditing Indonesia, 19(1): 25-38. DOI: https://doi.org/10.20885/jaai.vol19.iss1.art3
- Zimmerman, B.J., 2000. Self-efficacy: An essential motive to learn. Contemporary educational psychology, 25(1): 82-91. DOI: https://doi.org/10.1006/ceps.1999.1016
References
Afiah, N.N., 2005. The influence of the competence of DPRD members and regional government apparatuses on the implementation of accounting, budgeting and quality information on financial information systems on the principles of good local governance. unpublished dissertation. Universitas Padjadjaran Bandung.
Albasu, J. and J. Nyameh, 2017. Relevance of stakeholders theory, organizational identity theory and social exchange theory to corporate social responsibility and employees performance in the commercial banks in Nigeria. International Journal of Business, Economics and Management, 4(5): 95-105. DOI: https://doi.org/10.18488/journal.62.2017.45.95.105
Anigbogu, U.E. and E.K. Nduka, 2014. Stock market performance and economic growth: Evidence from Nigeria employing vector error correction model framework. The Economics and Finance Letters, 1(9): 90-103. DOI: https://doi.org/10.18488/journal.29/2014.1.9/29.4.90.103
Anthony, R.N., Govindarajan, 2003. Management control system. New York . McGraw Hill Publishing Company Limited.
Anyanwu, J.O., L.I. Okoroji, O.F. Ezewoko and C.A. Nwaobilor, 2016. The impact of training and development on workers performance in Imo State. Global Journal of Social Sciences Studies, 2(2): 51-71.
Awio, G. and D. Northcott, 2001. Decentralization and budgeting: The uganda health sector experience. International Journal of Public Sector Management, 14(1): 75-88. DOI: https://doi.org/10.1108/09513550110387093
Beckett-Camarata, J., 2003. An examination of the relationship between the municipal strategic plan and the capital budget and its effect of financial performance. Journal of Public Budgeting, Accounting & Financial Management, 15(1): 23. DOI: https://doi.org/10.1108/JPBAFM-15-01-2003-B002
Boynton, W.C. and J.N. Raymond, 2006. Modern auditing. United States. JohnWiley and Son, Inc.
Case, F.E., 1951. The budget as a measure of the federal urban housing programs. The Journal of Finance, 6(4): 429-439. DOI: https://doi.org/10.1111/j.1540-6261.1951.tb04484.x
Chang, W.S. and C. Liang, 2015. Exploring potential entrants’ perceptions of the performance of an agrirural social enterprise in Taiwan. International Journal of Management and Sustainability, 4(10): 205-217. DOI: https://doi.org/10.18488/journal.11/2015.4.10/11.10.205.217
Chielotam, A.N., 2015. Oguamalam masquerade performance beyond aesthetics. Humanities and Social Sciences Letters, 3(2): 63-71. DOI: https://doi.org/10.18488/journal.73/2015.3.2/73.2.63.71
Donaldson, L., 2001. The contingency theory of organizations. California. Sage. DOI: https://doi.org/10.4135/9781452229249
Dwianasari, R., 2004. The effect of the relationship between budgetary participation and decentralization structure on managerial performance of local government agencies: The role of organizational commitment as intervening variable. Sosiosains no. 17 (2004).
Freeman, R.J., C.D. Shoulders, G.S. Allison, G.R. Smith Jr and C.J. Becker, 2014. Governmental and nonprofit accounting: Theory and practice. JPAEJOURNAL OF PUBLIC AFFAIRS EDUCATION VOLUME 20 NUMBER 3: 441. DOI: https://doi.org/10.1080/15236803.2014.12001798
Herminingsih, 2009. Effect of participation in budgeting and managerial roles of regional financial managers on local government performance (empirical studies in the district government demak), thesis, Universitas Diponegoro Semarang.
Hogye, M., 2002. Theoretical approaches to public budgeting. Local Government Budgeting, Budapest: Open Society Institute.
Hussain, H.I., I.S.Z. Abidin, R. Kamarulzaman and F.A. Shawtari, 2018. The impact of state affiliated directors on the capital structure speed of adjustment in an emerging market. Polish Journal of Management Studies, 18(1): 133-148. DOI: https://doi.org/10.17512/pjms.2018.18.1.11
Indra, B., 2006. Akuntansi Sektor Publik. Jakarta. Salemba Empat.
Jones Osasuyi, O. and G. Mwakipsile, 2017. Working capital management and managerial performance in some selected manufacturing firms in Edo State Nigeria. Journal of Accounting, Business and Finance Research, 1(1): 46-55. DOI: https://doi.org/10.20448/2002.11.46.55
Kimsean, Y., Y.T. Keban and A. Subarsono, 2004. Analisis kinerja pelayanan publik pada unit pelayanan terpadu satu atap kota yogyakarta= analysis of performance of public service at unit of one roof integrated services in yogyakarta city. Sosiosains, 17(2004).
Kucukkocaoglu, G. and M.A. Bozkurt, 2018. Identifying the effects of mergers and acquisitions on Turkish banks performances. Asian Economic and Financial Review, 6(3): 235-244. DOI: https://doi.org/10.18488/journal.8.2018.63.235.244
Le, H.L., K.T. Vu, N.K. Du and M.D. Tran, 2018. Impact of working capital management on financial performance: The case of Vietnam. International Journal of Applied Economics, Finance and Accounting, 3(1): 15-20. DOI: https://doi.org/10.33094/8.2017.2018.31.15.20
Lupia, A. and D.M. Mathew, 2000. Representation or abdication? How citizens use institutions to help delegation succeed. European Journal of Political Research, 37(3): 291-307. DOI: https://doi.org/10.1111/1475-6765.00514
Malarvizhi, C.A., R. Nahar and S.R. Manzoor, 2018. The strategic performance of Bangladeshi private commercial banks on post implementation relationship marketing. International Journal of Emerging Trends in Social Sciences, 2(1): 28-33. DOI: https://doi.org/10.20448/2001.21.28.33
Maldonado-Guzman, G., J. Marin-Aguilar and M. Garcia-Vidales, 2018. Innovation and performance in Latin-American small family firms. Asian Economic and Financial Review, 8(7): 1008-1020. DOI: https://doi.org/10.18488/journal.aefr.2018.87.986.998
Maroofi, F., A.G. Ardalan and J. Tabarzadi, 2017. The effect of sales strategies in the financial performance of insurance companies. International Journal of Asian Social Science, 7(2): 150-160. DOI: https://doi.org/10.18488/journal.1/2017.7.2/1.2.150.160
Miah, N. and L. Mia, 1996. Decentralization, accounting controls and performance of government organizations: A new zealand empirical study. Financial Accountability & Management, 12(3): 173-190. DOI: https://doi.org/10.1111/j.1468-0408.1996.tb00186.x
Mosbah, A., S.R. Serief and K.A. Wahab, 2017. Performance of family business in Malaysia. International Journal of Social Sciences Perspectives, 1(1): 20-26. DOI: https://doi.org/10.33094/7.2017.11.20.26
Mowlaei, M., 2017. The impact of AFT on export performance of selected Asian developing countries. Asian Development Policy Review, 5(4): 253-261. DOI: https://doi.org/10.18488/journal.107.2017.54.253.261
Ott, K. and B. Anto, 2001. Local government budgeting in croatia. Zagreb, Croatia. Institute of Public Finance.
Pamungkas, B., 2005. The influence of the quality of legislative regulations, the application of public sector financial accounting and the application of supervision to the quality of government financial reports and performance accountability of government agencies (surveys of district and city governments in the Yogyakarta Special Region). Doctoral Desertation at Padjadjaran University, Bandung.
Premchand, A., 1993. Public expenditure management. Washington DC. International Monetary Fund.
Priono, H., 2011. Factors affecting regional financial management and its implications for Local government public service performance in East Java, accounting. Malang: Brawidjaya University.
Priono, H., 2011. Faktor-faktor yang mempengaruhi pengelolaan keuangan daerah dan implikasinya terhadap kinerja pelayanan publik pemerintah daerah di jawa timur. In: Accounting. Universitas Brawidjaya, Malang.
Purnama, C., 2014. Improved performance through empowerment of small industry. Journal of Social Economics Research, 1(4): 72-86.
Rahma, R., Yuhertiana, I., & Sundari, S. 2016. The use of E-audit in increasing government audit finding. Journal of Theoretical and Applied Information Technology, 93(2), 449–460.
Santhi, N.S. and K.B. Gurunathan, 2014. Fama-French three factors model in Indian mutual fund market. Asian Journal of Economics and Empirical Research, 1(1): 1-5.
Sedarmayanti.,2004. Good Governance.Bandung:CV Mandar Maju
Setiaji, W. and Priyo Hari Adi, 2007. Faculty of Economics, Satya Wacana Christian University Regional Financial Capability Map After Regional Autonomy: Is Experiencing Shift. National Accounting Symposium X. Makassar.
Shelton, M.W. and A. Troy, 2000. Financial performance monitoring and customer-oriented government: A case study. Journal of Public Budgeting, Accounting & Financial Management, 12(1): 87.
Shields, J.F. and D.S. Michael, 1998. Antecedents of participative budgeting. Accounting, Organizations and Society, 23(1): 49-76. DOI: https://doi.org/10.1016/S0361-3682(97)00014-7
Siegel, G. and H. Ramanauskas-Marconi, 1989. Behavioral accounting. South-Western Publishing Company.
Tuasikal, A., 2007. Pengaruh pengawasan, pemahaman sistem akuntansi keuangan dan pengelolaan keuangan terhadap kinerja unit satuan kerja perangkat daerah pada kabupaten dan kota di propinsi maluku. Jurnal Keuangan dan Perbankan, 10(1): 66-87.
Walker, R.M. and G.A. Boyne, 2006. Public management reform and organizational performance: An empirical assessment of the uk labour government's public service improvement strategy. Journal of Policy Analysis and Management, 25(2): 371-393. DOI: https://doi.org/10.1002/pam.20177
Welsch, G.A., 1976. Budgeting: Profit planning and control. London. Prentice Hall.
Yuhertiana, I., 2003. Principal-agent theory dalam proses perencanaan anggaran sektor publik. KOMPAK: Jurnal Akuntansi, Manajemen, dan Sistem Informasi. Yogyakarta: FE UTY(9): 403-422.
Yuhertiana, I., S. Pranoto and H. Priono, 2016. Perilaku disfungsional pada siklus penganggaran pemerintah: Tahap perencanaan anggaran. Jurnal Akuntansi dan Auditing Indonesia, 19(1): 25-38. DOI: https://doi.org/10.20885/jaai.vol19.iss1.art3
Zimmerman, B.J., 2000. Self-efficacy: An essential motive to learn. Contemporary educational psychology, 25(1): 82-91. DOI: https://doi.org/10.1006/ceps.1999.1016