Financial and non-financial determinants of local government financial performance: evidence from West Java, Indonesia

Abstract

This study investigates the financial and non-financial determinants of local government financial performance by analyzing panel data from 27 regencies and cities in West Java Province, Indonesia, over the 2019–2023 fiscal period. Recent decentralization reforms in Indonesia have intensified the need for stronger fiscal independence and accountability at the regional level. However, empirical evidence indicates persistent dependence on central transfers and varied performance across regions. This research contributes to the literature by integrating intergovernmental fiscal transfers, regional expenditure, surplus of budget financing (SILPA), audit opinions, government size, and legislative size into a unified analytical framework grounded in stewardship theory and signaling theory. Using a panel-data regression approach, the study reveals that fiscal transfers, regional expenditure, and SILPA negatively and significantly affect financial performance, while audit opinion and government size exert a positive and significant influence. Legislative size shows a positive but statistically insignificant effect. The findings highlight that both financial management quality and institutional governance characteristics jointly shape the fiscal capacity of local governments. This study extends current understanding by providing updated empirical evidence on the post-pandemic fiscal period and offers practical insights for policymakers aiming to strengthen fiscal autonomy and regional accountability.