DETERMINANTS OF FINANCIAL PERFORMANCE : STUDY OF LOCAL GOVERNMENTS IN WEST NUSA TENGGARA

Abstract

The financial performance is not only influenced by financial factors but also non-financial factors. Financial factors which are components of the budget consists of revenue (PAD and Balanced Funds) and expenditure (capital expenditure), while non-financial factors namely environmental factors (population and GDRP). This study aims to examine and provide empirical evidence about the influence of the PAD, Balanced Funds, Capital Expenditure, Population and GDRP to financial performance of local governments in West Nusa Tenggara. Partial least squares (PLS) is used in analysing data. Data are collected from 8 regencies and 2 cities in West Nusa Tenggara Province for 5 (five) years from 2011 to 2015 respectively. The results shows that the PAD has a significant positive effect on the financial performance of local governments in West Nusa Tenggara, as measured by the ratio of its effectiveness and the ratio of capital expenditure, mean while the Balanced Funds, Capital Expenditure, Population and GDRP has no effect to financial performance. Contributions of research reveals that the local government’s financial statements can be used in assessing financial performance of local government, so it useful in making decisions. PAD influence on the financial performance provides evidence that local governments can improve its financial performance through the potensial revenue optimalization, such as tax extensification and intensification.