The effect of locally generated revenue as an intervening variable on the financial performance of the regional government of South Sumatra province

Abstract

Purpose: The purpose of this study was to determine the direct or indirect effect of the Balancing Fund and Capital Expenditure on the Financial Performance of Local Governments through Regional Original Income as an Intervening Variable. The object of this research is the report on the realization of the APBD of 17 districts/Cities in the Province of South Sumatra from 2016-2020.

Design/methodology/approach: The data used is secondary data from the website of the Directorate General of Fiscal Balance of the Republic of Indonesia (www.djpk.depkeu.go.id) in the form of quantitative data with the type of data, namely time series, which is during the period 2016-2020. The research population used is 17 regencies/cities in South Sumatra Province and the sample used is 85 samples. Data analysis techniques in this research are descriptive analysis, classical assumption test, hypothesis testing and path analysis using SPSS for Windows version 26.0 software.

Findings: The results of this study indicate that the Balancing Fund does not directly affect Regional Original Revenue, Directly Capital Expenditure affects Regional Original Income, Directly the Balancing Fund, Capital Expenditure, and Regional Original Income cannot affect Regional Government Financial Performance, Indirectly the Balancing Fund variable and Capital Expenditures affect the Financial Performance of Regional Governments through Regional Original Revenues as Intervening Variables.

Practical implications: This research is expected to be an evaluation material for Local Governments in improving Government Financial Performance.

Originality/value: The conclusion of this study is that indirectly Locally Generated Revenue plays an important role in increasing the effectiveness of local government financial performance. If the Regional Original Revenue gets a large contribution, the level of dependence on the central government will decrease. Government financial performance can be considered effective if the regions do not depend much on the center. Then if the revenue of Regional Original Income is high, the region is able to finance infrastructure development evenly in an effort to improve the welfare of the community.